Cash flow statement classification for float and lending balances

Classifying movements in customer float, wallet liabilities and BNPL receivables as operating, investing or financing activities materially changes reported operating cash flow, a metric heavily scrutinized for fintechs, and requires a consistent, well-reasoned policy rather than a default classification; misclassification can make a cash-burning lending business appear operationally cash-generative, or vice versa.

Is customer float held and managed as part of normal operating working capital, or does it behave more like a financing/custodial arrangement? Is lending/BNPL the entity's principal revenue-generating activity (supporting operating classification) or a smaller, ancillary activity? Is net presentation used only where permitted (quick turnover, large amounts, short maturities), with the classification policy applied consistently period to period?

1) Determine whether lending/BNPL is a principal revenue-generating activity of the entity (as for a financial institution) or a smaller, ancillary activity. 2) If principal, classify cash flows from originating and collecting loans as operating activities; if ancillary/non-core, consider investing classification. 3) Classify routine merchant settlement float movements as operating, reflecting normal working-capital-like behavior. 4) Confirm whether gross or net presentation is appropriate: net presentation is permitted only for items with quick turnover, large amounts, and short maturities (e.g., customer wallet balances, short-term settlement float); present other flows gross. 5) Document the classification policy formally and apply it consistently period to period. 6) Disclose and explain any change in classification policy, including its effect on comparatives.

Present gross cash inflows and outflows for major classes unless net presentation is permitted (e.g., for items with quick turnover and large amounts, such as customer wallet balances or short-term settlement float); measure the amounts presented consistently with the underlying balance sheet movements, reconciling any difference caused by FX or non-cash items.

Disclose: the classification policy for wallet/float and lending cash flows and the rationale (principal versus ancillary activity assessment); any change in policy with the reason and quantified effect on prior-period comparatives; a reconciliation of cash and cash equivalents to restricted/segregated balances if presented separately; and the components of operating cash flow that relate to lending/BNPL versus core payments processing.

• Classifying BNPL originations and collections as investing activities by default without considering that lending is a core revenue-generating operation for many fintechs, which would call for operating classification
• inconsistently switching classification approach year to year without disclosure
• netting large gross lending cash flows that do not meet the quick-turnover/short-maturity criteria for net presentation
• failing to separately identify float movements from lending movements when both exist, obscuring the true driver of operating cash flow changes.