Give Me One Good Reason

Q:?I read your recent post about the financial problems faced by Yellow Corporation resulting in their bankruptcy.?What I don’t understand is why creditors continued to support and sell on open account terms to this company right up until the end. Is there a valid reason to do so?

A: ??Here are 20 reasons to do so.?I’ll let you decide if they’re valid or not…

1.??The credit manager was asked to do so

2.??The credit manager was ordered to do so

3.??The credit manager’s negative credit decision was overridden

4.??The creditor company had credit insurance

5.??The creditor had a personal guarantee

6.??The creditor had an intercorporate guarantee

7.??The creditor had a perfected security interest in assets owned by Yellow

8.??The credit limit was small / insignificant to the creditor company

9.??Yellow was considered to be a key customer of the creditor

10.??????????????????Yellow was considered to be a friend-of-the-boss account

11.??????????????????The consensus was that Yellow was too big to fail

12.??????????????????The creditor’s profit margin on sales to Yellow were enormous

13.??????????????????The creditor required and received partial payment in advance from Yellow

14.??????????????????The creditor also purchased from Yellow and the amounts essentially offset each other

15.??????????????????The creditor was unaware of the risk, and/or

16.??????????????????The creditor was unaware of Yellow’s financial difficulties

17.??????????????????Someone did a cost benefit analysis and determined the benefits of continuing to support Yellow outweighed any potential costs

18.??????????????????The creditor was playing follow the leader waiting for other, larger trade creditors to signal they were no longer confident about Yellow’s creditworthiness before taking adverse action

19.??????????????????The creditor believed that the $700 million COVID loan received 2 years ago would be enough to ensure Yellow would not fail for at least several more years

20.??????????????????The creditor was aware of the challenges facing Yellow, and was making credit decisions on an order-to-order basis, but did not read the tea leaves with sufficient clarity to believe that August 2023 would be when Yellow filed for bankruptcy protection

It’s likely that the reason some creditors continued to sell to Yellow on open-account terms was a combination of two or more of the reasons listed above… and this is not an exhaustive list of reasons creditors sold to Yellow Corp.