- Electronics and nuclear powerhouse Toshiba reported a net loss of $8.83 billion this week, raising concerns over the company's ability to survive the fallout of a U.S. nuclear power subsidiary Westinghouse Electric's bankruptcy, The Wall Street Journal reported.
- Cost overruns forced Westinghouse into bankruptcy in March, shortly after Toshiba wrote off a $6.3 billion loss related to the nuclear company. While Toshiba has yet to seek protection, both companies are now imperiled by the heavy loss and accounting mishaps.
- Toshiba has so far guaranteed payments to its partners, but suppliers are growing weary over the company's health. Meanwhile, Westinghouse suppliers have suffered thousands of dollars in losses, per the Pittsburgh Post-Gazette, and do not expect quick repayment, if any, for their products and services.
In the supplier world, the unending quest to get paid is growing ever more combative. Now, with even non-brick and mortar buyers filing for bankruptcy, a few lessons can be learned.
Though traditionally it's the suppliers that are faced with credit rating anxiety, lately it's the buyers that are sinking, leaving their suppliers in the red. Small companies doing business with large may assume they have no payment concerns, and yet in various recent cases, the opposite has been true.
Consider the lawsuit between General Motors and Clark-Cutler-McDermott, in which we saw Goliath press David to accept progressively less sustainable terms which ultimately led to bankruptcy. Or, the case of Westinghouse's pipe valve and fitting supplier James M. Cox, which despite writing off a $31,000 loss says it will continue to supply the court-protected company.
The worst part: It's not the first time James M. Cox has suffered a bankruptcy per the Post-Gazette. In fact, bankruptcy rules that prioritize creditors over unsecured albeit contractual obligations may have beleaguered suppliers accustomed to sudden losses.
The examples show the importance of financial risk monitoring for operational health, for suppliers as well as buyers. Toshiba, for example, had reportedly been overstating profit as early as 2015 and Westinghouse stopped publishing schedules for its construction projects after some times, both scenarios which may have sparked a red flag.
However, suppliers are frequently forced into a paradox as enforcing strict terms of payments can aggravate a struggling buyer's financial problems. Perhaps that is why, when suppliers do act to ensure payment or other compliance, they tend to be more aggressive in their policies.