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Retail Manufacturer Avoids $1M Loss

Case Study: How Proactive Actions by TCD Helped a Manufacturing Client Avoid a $1 Million Trade Credit Bankruptcy Loss

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MID-market manufacturer

400+ customers

1 receivables solution

About the Client*

TCD’s client is a well-established manufacturer with annual revenues of $150 million, operating in both the U.S. and Canada. The company imports its products from China and supplies them to over four hundred retail and distribution customers.

*Due to the sensitive nature of the data, the client’s name has been omitted from this study.

The Challenge

The client was facing high-risk exposure in the Consumer Products industry, particularly with retailers. During one of its routine high-risk customer analyses, TCD’s credit team flagged a significant risk related to one of the client’s retail customers. This customer had breached its bank covenants and was struggling to secure additional funding from its lenders.

TCD’s team had been actively monitoring financial news and reports, observing a growing concern about the retailer’s financial instability. Despite these warnings, the client continued to ship products to the retailer, downplaying the severity of the risk. However, the situation worsened when the retailer hired turnaround consultants—an indication that bankruptcy might be imminent.

At this point, the client had already shipped $1 million worth of product from China to the troubled retailer, adding significant risk to their exposure.

The Solution

Realizing the escalating risk, TCD urgently recommended that the client take immediate and decisive action. The proposed strategy was to:

  • Revoke the retailer’s credit terms entirely.
  • Collect outstanding payments immediately.
  • Cease all further shipments to the retailer.

In addition, the client made the decision to divert the incoming shipment, worth $1 million, which was in route from China. Instead of delivering it to the retailer’s warehouse, the client redirected the goods to a secure warehouse they owned in the U.S.

With the product safely in their control, TCD’s credit experts conducted a comprehensive assessment of the retailer’s newly arranged Debtor-in-Possession (DIP) financing and calculated the cash burn rate of the restructured entity. Based on this analysis, TCD recommended offering the product to the newly restructured company, but only under strict terms: shipments would only be made once  payments had cleared the bank, and a limited credit line would be imposed.

The Results

Shortly after the diverted shipment arrived in the client’s warehouse, the retailer filed for Chapter 11 bankruptcy. Thanks to TCD’s early warnings and strategic advice, the client was able to recover nearly all the payments for products shipped after TCD’s intervention. These funds were secured through the new entity’s post- petition financing.

Had the client not followed TCD’s recommendations, the $1 million in shipped goods would have been included as part of the retailer’s unsecured claims in the bankruptcy proceedings, resulting in the client recovering only pennies on the dollar, along with other unsecured creditors.

Conclusion:​ TCD’s proactive trade credit risk management, constant financial monitoring, and in-depth analysis played a crucial role in preventing a significant financial loss for the client. Through real-time updates and tailored strategies, TCD empowered the client to make informed decisions, protect their Accounts Receivable portfolio, and minimize exposure to trade credit losses.

By taking immediate and decisive action based on TCD’s expert guidance, the client successfully avoided a potential $1 million trade credit loss and safeguarded its financial position in a challenging market environment.

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Measurable Results

  • Cash flow improvements of up to 50%.
  • Shrink day sales outstanding by 25% or more.
  • Increase unauthorized deduction recoveries by 200%.
  • Improve receivable performance management.
  • Improved financing opportunities and lender relations.
  • Live Data that improved strategic decisions.
  • Streamline aged receivable collection.
  • Improve customer communication.
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The Credit Department is the first and only true credit management outsourcing firm in the U.S., managing trade receivables for companies worldwide. We have worked in more than 100 industries to bring about change and dramatic results in our customers’ order to cash cycles.

As your strategic business partner, we become a cohesive and transparent component of your daily operations — whether you have an internal credit department or not. We also work with private equity groups to increase the value of portfolio company receivables to maximize cash flow from the asset. Our solutions integrate easily and cost-effectively with corporate systems within 24-48 hours.

If you’re ready to take control of your trade receivables management — and gain access to real-time cash flow forecasting — it’s time to contact The Credit Department.

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