A substantial number of companies use working capital as a major source of financing, including payables. This can be as simple as delaying payment, but often involves issuing bills payable (such as bank acceptance notes), or setting up a supply-chain finance facility with a bank or other financial institution. While a valid source of funding if used in moderation, a major attraction for companies is that it typically flatters the companies’ financials, boosting operating cash flow and reducing leverage. By understating net debt, enterprise value is also reduced, lowering valuation multiples based on it. We flag companies where excess payables (>90 days) exceed 10% of equity as it implies that leverage is materially higher than reported. 

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