Our second instalment takes a look at Toys ‘R’ Us, delving into what led our favourite giant toy warehouse to go into administration, and what we can do to halt smaller businesses following suit. The American arm of Toys ‘R’ Us secured a $3.1 billion bankruptcy in September 2017, at which point suppliers to the chain thought that they would be paid any outstanding debts. Yet as Toys ‘R’ Us travels towards liquidation, those payments are at risk.
Some suppliers to Toys ‘R’ Us relied on the chain for 40% of their trade. Reclaiming any money owed to them will depend on the progress of the liquidation proceedings, but those companies will undoubtedly have to think quickly about how to find that chunk of income elsewhere. It is, and will be, a difficult time, but for those with invoice insurance, their workload will at least be a little reduced if there are any bad debts looming due to client insolvency or protracted default that InvoiceInsure would recuperate if it were a UK business.
Larger suppliers will perhaps be more resilient. Isaac Larian is chief executive of MGA Entertainment who make Bratz dolls. The company has a $14-15 million payment owed to them from the Toys ‘R’ Us crumble, but are also a big business that likely have relevant mechanisms in place to swallow such a loss. They can already turn to established relationships with alternative retailers like Amazon, Walmart and Target.
Sadly, many of the small vendors will instead probably follow in the wake of Toys ‘R’ Us and file for bankruptcy. A US Bankruptcy Court in Virginia reported that in the wake of the collapse of the chain, they were receiving frequent calls from clients with hundreds of millions of dollars of claims. It’s not only the financial impact that’s worrying for smaller scale enterprises. Lots of smaller toymakers relied on the huge Toys ‘R’ Us warehouses as showcases for their unique work and innovative designs. Many smaller businesses also make important employers for local people.
So what can ambitious businesses do when it comes to staying aware and resilient to the potential collapses of companies they supply to, or do business with? Vendors are paying increasing attention to their customers’ financial health, steadily growing online sales, attracting new sources of revenue and, especially, liquidity. Whilst looking to online retail is always a wise move, companies such as Amazon don’t require a minimum order so success always depends solely on consumer taste.
One thing is definitely key. Visionary companies who want to survive in a changing and complex business environment should ensure they insure their invoices against bad debt. All that takes is a simple and affordable monthly payment, but its impact is vast.
Make sure you get paid, every time, with InvoiceInsure.
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