Flaws in the way companies account for supply chain finance may have contributed to the collapse of Carillion because it failed to reveal the true extent of the construction giant’s debt, according to Moody’s.

The ratings agency said the accounting meant that Carillion’s 2016 balance showed £148m in bank loans and overdrafts when an additional sum, up to £498m, was owed to banks yet excluded from “borrowings”.

Moody‘s said the confusion stemmed from the use of “reverse factoring arrangements”, a form of supply chain finance which sees suppliers’ invoices paid early by a third party, for example a bank, while the customer registers a debt.

However, Moody’s said the absence of “specific accounting treatment” means that few companies make specific disclosures about their financing arrangements with suppliers.

Trevor Pijper, vice president and senior credit officer at Moody’s, said: “Carillion’s approach to its reverse factoring arrangement had two key shortcomings: the scale of the liability to banks was not evident from the balance sheet, and a key source of the cash generated by the business was not clear from the cash flow statement.”

Moody’s points out that from 2013 to 2016, Carillion reported group operating profit totalling £501m, an outcome the agency said was “corroborated” by cashflow statements showing cash generated over the same period from operations at £509m.

However, there was no disclosure that the incoming cash included £498m in reverse factoring finance.