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2021
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78.2
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The Early Warning Signs that Traditional Credit Reporting Missed.
Toys "R" Us WHITEPAPER
Why Were So Many Creditors Blindsided?
Most credit departments rely on traditional credit analysis and scoring to predict risk scenarios, which is heavily based upon payment behavior.
While payment behavior provides useful information as to how a certain company pays its creditors, it does not provide clear insight into a company’s growth or decline.
Toys “R” Us showed little change in their payment behavior throughout the year leading up to their bankruptcy.
Toys “R” Us's DBT did show some fluctuation but was not consistent or predictive in terms of any demise.
Credit Departments that used Moody's Analytics Pulse received detailed notifications of declines in spend behavior and news alerts well in advance of the official bankruptcy filing.
This enabled their credit managers and financial executives to proactively act
in time to protect their receivables.
Not All Creditors Were Blindsided.
How Did We Catch These Early Risk Signs?
Moody's Analytics Pulse goes beyond traditional commercial credit bureaus to analyze a business's purchase behavior – what companies buy, and how those trends change over time.
A decrease in spend on operations and shipping suggests that a business is rapidly shrinking and moving less product.
While Toys "R" Us continued to pay its bills on time, they cut spending drastically, signaling a financial decline well in advance of their bankruptcy filing.
The spend amounts by Toys "R" Us on operations were decreasing significantly for three years leading up to their bankruptcy.
The decrease in shipping shows Toys "R" Us was moving almost less than half the product they had the year before.
Traditional payment behavior alone is not strong enough to detect credit risk in time for creditors to respond.
Credit departments need to analyze and monitor purchase behavior in order to stay ahead of B2B credit risk and financial loss.
What Can We Learn From This?
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Toys "R" Us, once a favorite retailer among kids and teens, started seeing major drops in sales when shoppers began gravitating toward online stores.
Ultimately leading the highly esteemed retailer to file for Chapter 11 bankruptcy, blindsiding many of their creditors who were unable to tighten credit limits in time to protect themselves.
The Unpredicted Risk Scenario.
Learn the risk signs that commercial credit bureaus are missing and how to spot your customer's financial decline in time to act.
