The Bankruptcy Problem

I talk a lot about bankruptcy because I think about it frequently and to be fair, I spend a lot of time talking with clients about it. We discuss the last bankruptcy that impacted their AR, what it would look like if one of their key buyers were to suddenly file and what kind of impact it could have to their cash flow.

Some see nothing but doom and gloom ahead, insolvency impacting one company after another in our struggling economy, end times for sure. There are those that see absolutely no issue at all. They believe that bankruptcy is simply the equivalent of Darwinism in the business world. It won't touch the ones who are smart enough to outthink it. Then there are the rest of us. I fall into this third camp. There are things we can control when it comes to bankruptcy and while it is most certainly matter of the strong survive, it is also not a fair playing field and there is so much to be learned.

You may wonder what this has to do with trade credit, and I will tie it up with a nice bow for you eventually, but first I want to remind you that in the late 90s there was a company named Barnes and Noble. It was the Juggernaut of the book world, boasting 20 times the sales of a struggling little online business named Amazon.

The founder of this risky new company design, Jeff Bezos, was laughed at and told to give up as it was all but sure to fail. Amazon was nearly bankrupt and almost didn't make it out of the dot com bubble that took out so many big names from the early wild west days of the internet (imagine a world where Amazon was buried with Napster, InfoSpace and Ask Jeeves). Bezos relented, confident in his ability, taking out loans in 2000 and 2002 just to remain operable.

Fast forward to today. Barnes and Noble launched and is now discontinuing the e-reader that was their reply to Amazon's Kindle launched in 2007. (I owned a Nook at one point-I had to look up the name now because it's been that long) In time, Barnes & Noble closed dozens of stores, shifted to an online focus, then slowly found their way back to their roots. Turns out, their place in this world is still there with those who love paper books and a physical place to browse and read them. The demand is much lower now than it once was, but it still exists. They have redesigned their business model over and over to survive, when just a few decades back, they looked untouchable. Meanwhile, I don't have to tell you what happened to Amazon and their fearless leader Jeff Bezos, but I will mention that you can buy a Nook on Amazon, today.

The moral here is that bankruptcies and insolvencies are often unpredictable and can happen to any company as we are in a quickly evolving world of new technology and demand for instant gratification. When I use the cliche "you don't know what you don't know" I think there is a tendency to think of this very narrowly. As in you don't know what your client's bank account has in it. Or if they will pay their next invoice. And all that is true.

But when I say it, I am thinking about the companies of today that are like the Amazon of the late 90s. Groups with dreams and ideas and energy and in need of funding, prepared to turn another industry on its head. I am thinking of the types of companies that are planning for doom and gloom or think there is no risk for them because they are plugging along with their current processes. I find myself wondering how they are preparing to do business with these riskier new companies and who will be willing and able to extend credit to the next Amazon.