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Credit In-Depth Newsletter May 2024

Credit In-Depth Newsletter May 2024

US corporate bankruptcies in April reach highest monthly level in a year

In April, US corporate bankruptcy filings surged to their highest level in a year, reflecting the enduring strain of elevated interest rates on businesses across various sectors. Data from S&P Global Market Intelligence reveals a total of 66 new bankruptcy filings in April, a notable increase from the revised 61 filings in March. This escalation in bankruptcy cases underscores the persistent challenges faced by companies amidst a backdrop of economic uncertainty and financial pressure.

The momentum of bankruptcy filings has quickened since the onset of the year, albeit with a slight dip compared to the corresponding period in the prior year. Over the first four months of 2024, a total of 210 filings were recorded, marginally lower than the 224 filings during the same timeframe in 2023. This trend suggests a continued struggle for businesses to navigate the economic landscape amid prevailing interest rate dynamics.

A key contributing factor to the surge in filings is the diminishing optimism surrounding the possibility of lower interest rates. Companies, which may have anticipated rate cuts at the beginning of the year, are confronting the reality of prolonged high interest rates. This realization is prompting businesses to reassess their financial viability and explore restructuring options in a bid to weather the challenging economic conditions.

Among the notable filings in April was clothing retailer Express Inc., which filed for bankruptcy on April 22. The company outlined plans to pursue a sale to WHP Global LLC and other stakeholders while simultaneously announcing the closure of 95 of its US and Puerto Rico retail stores out of approximately 530 locations. Express Inc. secured $35 million in new financing, supplemented by $49 million from the Internal Revenue Service under the Coronavirus Aid, Relief, and Economic Security Act.

Additionally, communications technology firm Casa Systems Inc. filed for bankruptcy on April 3, citing a substantial decline in revenue and profits attributed to industry-wide capital investment and procurement trends. The company disclosed intentions to divest its 5G and radio access network businesses to Lumine Group Inc. and its cable business to Vecima Networks Inc. as part of its restructuring strategy.

The surge in corporate bankruptcy filings mirrors the trend observed in March, where 59 new filings were recorded, up from a revised total of 48 in February. Although year-to-date bankruptcies by the end of the first quarter were below the previous year’s total, they surpassed comparable figures for much of the past decade. The steady increase in bankruptcy cases since the beginning of the year underscores the financial strain faced by businesses and the likelihood of sustained elevated levels as prospects for near-term rate cuts dwindle.

Among the notable filings in March was fabric and crafts retailer JOANN Inc., which filed for bankruptcy on March 18. With over 800 store locations across 49 US states, JOANN Inc. aims to reduce its debt burden by approximately $505 million through a combination of new financing amounting to $132 million and other financial arrangements.

The recent surge in US corporate bankruptcy filings highlights the mounting pressure on businesses grappling with high interest rates and operational challenges. As economic uncertainties persist, companies are compelled to explore restructuring avenues to mitigate financial distress and navigate through turbulent times.

Source: S&P Global Market Intelligence

Improving working capital ratio

What is a good working capital ratio?

A good working capital ratio (remember, there is no difference between current ratio and working capital ratio) is considered to be between 1.5 and 2, and suggests a company is on solid ground. In the best sense, it indicates you have enough money on-hand (e.g. your customers have paid you on time, you have funds in the bank or access to financing) to pay your suppliers or your lease or employees without difficulty.

A ratio greater than 3 suggests a company may not be using its assets effectively to generate future growth. Your money should be working for you as hard as your employees are. For example, developing new products and services, looking for new markets, planning ahead to remain competitive.

Interpreting a negative working capital ratio

If the working capital ratio calculation shows your company’s current liabilities exceed its current assets – for example, if your working capital ratio turns out to be less than 1 — your company has a negative working capital ratio. In other words, there is more short-term debt than there are short-term assets on your balance sheet, and you’re probably worrying about meeting your payroll each month.

Take this as a sign you should be increasing revenues or cutting expenses – or both – to avoid liquidity problems. You need to see how to improve your working capital ratio. Review where you can cut back, and remember: if you choose to produce more in order to increase revenues, this increased production will cost more money, whether it’s overtime for your sales staff or an extra shift for your employees.

You should also seek outside sources of funding, and have a look at your billing cycle and customer payments. For example, if one of your major customers pays you on a quarterly basis, you may have difficulties meeting monthly bills. You might suggest altering payment terms: can you receive a portion of the amount due up-front? Or ask for a letter of credit to use as short-term funding collateral? An exception to this is when negative working capital arises in businesses that generate cash very quickly and can sell products to their customers before paying their suppliers.

How to improve working capital ratio

Figuring out a good working capital ratio and then keeping an eye on your company’s cash flow can help you understand when a shortfall lies ahead so you can take the necessary steps to maintain liquidity. Knowing how to improve your working capital ratio will give you the resources you need to take advantage of new business opportunities.

There are a number of ways to boost working capital to ensure you avoid a negative working capital ratio. For example:

  • Create a shorter operating cycle to increase cash flow and reduce the possibilities of non-payment. If you are in the position of having to pay suppliers before receiving payments yourself, you may be forced to use your accounts receivable as a form of collateral for financing an increase in working capital to cover the gap. A shorter operating cycle combined with trade credit insurance can be a less expensive option.
  • When taking on new clients, don’t forget to conduct customer credit checks. You want to be sure the new business will increase your revenues and safeguard your working capital.
  • Avoid financing fixed assets with working capital, such as IT equipment. Lease or take out a long-term loan instead of depleting your company’s cash.
  • Consider buying trade credit insurance. By insuring your business from non-payment of your accounts receivable, trade credit insurance helps keep your working capital ratio at an adequate level and supports your application for financing because lenders consider it as secured collateral.

Remember: working capital is important in each step of your business cycle, from the purchase of materials and production of goods or services, to sales and receipt of payment. And improving your working capital ratio means you can seize growth and new business opportunities.

Source: Allianz Trade

Credit Tidbits
5Cs of Credit Worthiness


What is the business’s financial capacity to pay its invoices? Does it have sufficient cash flow? Is it heavily saddled with debt? Business credit applications typically ask the applicant to supply bank references, trade references, and financial statements. These documents will reveal the applicant’s capacity to pay. If an applicant can’t provide financials or references, credit managers will need to find other ways to assess the company’s capacity to pay. Many consult business credit reports, which contain scores and ratings that can reveal a potential credit risk. To remove the inline CSS styles from the HTML code provided, you can strip out all the `style` attributes. Here’s the cleaned HTML: “`html


Capital describes the financial and non-financial assets that a business holds, as well the amount of money the business owners have invested in their company. If the financial assets listed in the financial statement demonstrate growth (such as owning instead of renting a vehicle fleet), that may imply a lower risk of non-payment. Of course, having a financial statement makes it easier for a credit manager to assess the credit-seeker’s capital strength. Some industries are more capital-intensive than others, and this is where the non-financial assets – including real estate, inventory, machinery, and other equipment – can be helpful in determining creditworthiness. Those industries that require major investments in inventory and equipment may seem riskier than those that operate with a lower overhead, but this is where the credit manager’s expertise comes into play. Their knowledge of various industries and trends can help assess financial strength.


Credit managers use a character judgement to help determine if an applicant seems willing to honor their debt. Trade references, payment records, and a clean legal history in the business credit report help illustrate character. Otherwise, character is subjective, and many used to consider it the most important “C.” Before credit decisions were automated, the credit profession placed a strong emphasis on the applicant’s character and the professional relationship between the customer and the credit manager. If they knew their customer’s business well, they would be more willing to work with that customer account in times of slow payments. A customer that doesn’t return phone calls or emails may wind up having their invoice sent to collections, which can hurt the business’s chances for future credit requests.


Applicants with a questionable credit history may be asked to put up collateral to secure their debt obligation for a high line of credit, the same as any other type of loan. Here, the inventory, machinery, and other equipment noted under Capital as assets can be used as collateral. While collateral offsets the lender’s risk, it’s important to remember companies would rather work out a payment plan with their customers than try to seize an asset as part of the collections process.


Conditions allows the credit manager to look at the big picture and consider economic conditions within the applicant’s industry, its competition, and its geographic location, to name a few. For example, two companies of the same industry and the same size each seek a line of credit, but one is located in a city with thriving demand and the other is located in a smaller market and has been losing customers to the competition for years. The thriving company seems low risk, but the other one may have growth potential if it has recently changed its business strategy to account for the competitive impact. Stepping back and considering macro-level conditions and opportunities for growth enables credit managers to make more calculated risk decisions.

Source: Dun and Bradstreet

Ali Ayache

Senior Credit Analyst

What does your role consist of at ProfitGuard?
I typically review current and evolving market risk, analyzing credit documents, and writing the monthly newsletter.

Previous education / work background
I worked for a family-owned paper company in which I was a credit specialist. My daily tasks include creating accounts, making credit decisions, collections efforts, handling of tax documents, negotiating payment plans, and posting AR.

What do you enjoy most about working at ProfitGuard?
I enjoy that every day is different, the peaceful work environment, and great culture attributed to my colleagues.

What does success mean to you at ProfitGuard:
Success at PG means fulfilling my role to the best of my abilities as an individual and at a team level while expanding my abilities as I take on various challenges.

What are your hobbies? How do you spend your free time?
I enjoy spending time with my family, going to the beach, movies, bonfires, working out, and traveling overseas.

What’s one piece of advice you would give to someone working in this industry?
To be successful, you must be skilled in several areas and be able to multitask. Don’t be afraid to ask questions and think outside of the box.


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