In the fall, many suppliers are shipping merchandise for the busy fourth quarter retail holiday season. It was late on a Friday afternoon when retailer Toys R Us quietly announced that the company was filing for Chapter 11 bankruptcy protection from their creditors. Many creditors of Toys R Us were caught unaware of their precarious financial situation, but not TCD’s clients. The Credit Department team had already analyzed the financial cash flow situation of Toys R Us months ago for our clients during their normal update of business partner risk analysis.

Our analysis showed that Toys R Us had a 100 percent chance of filing for bankruptcy within 12 months. The only issue was when. With that knowledge, our clients were able to make proactive decisions to limit credit lines while still shipping product and avoiding unnecessary risk.

TCD constantly monitors actions of our clients’ “near bankruptcies portfolios.” We discovered that Toys R Us had contacted a bankruptcy legal firm. One of our clients had also just received an order from Toys R Us for $321,000 with $160,000 of it scheduled to ship in a couple days. Due to the timeliness of TCD’s monitoring, a business decision was made to delay shipping for just one day, avoiding a pre-bankruptcy $160,000 potential bad debt loss and future entanglements in bankruptcy courts with preference decisions.

TCD’s timely monitoring and analysis saved our client between $160,000 and $321,000 in bad debt (plus court fees). Which situation would you prefer: fighting with bankruptcy courts or avoiding bad debt in the first place? The lesson of this story is that companies need to be on top of credit risks, even among historically sound customers and large, seemingly profitable customers alike.

Contact us to learn more about how we monitor potential credit risks in your accounts receivables and customer lists.