When a Customer Runs Short of Cash, Who Gets to Renegotiate?

Recent research from Moody’s raises an uncomfortable question for smaller suppliers: are they extending credit without knowing that their customers’ lenders have already identified financial trouble?

In the summer of 2025, Saks Global arranged additional financing from existing lenders. One of its objectives was to settle overdue amounts owed to merchandise suppliers.

It wasn’t enough.

According to the company’s subsequent bankruptcy filings, the financing failed to clear its accumulated supplier obligations. Relations with vendors deteriorated, merchandise deliveries became more difficult and Saks filed for Chapter 11 protection in January 2026.

The episode illustrates something easily overlooked in discussions about corporate debt: when a business encounters financial difficulty, its creditors do not necessarily have equal opportunities to protect themselves.

The distress that doesn’t count as default

An October 2026 study by Moody’s examined credit deterioration among US middle-market borrowers.

The reported default rate was 4.0%. When Moody’s included certain distressed arrangements involving deferred interest payments and extended loan maturities, the figure rose to 5.8%.

That is approximately 45% more credit events than conventional defaults alone would suggest.

These findings concern a particular sample of private-credit borrowers, not the entire US lending market. Nor does every loan amendment signify financial distress.

Nevertheless, they reveal how borrowers can obtain relief from lenders without entering formal default.

Such arrangements are often negotiated privately. Institutional lenders have access to financial information, loan covenants and management discussions that ordinary suppliers do not.

Two very different creditors

Consider the position of a smaller company providing goods or services to a corporate customer.

Its invoices might carry 30-, 60- or 90-day payment terms. In effect, it is extending credit to that customer.

If the customer’s financial position deteriorates, its institutional lenders may be able to negotiate new terms, obtain additional security or demand financial concessions.

The supplier is unlikely to have comparable negotiating power or access to information. The exposure can be particularly acute when one customer accounts for most of the supplier’s receivables.

It may continue delivering goods or services under an existing contract, unaware of the discussions taking place between the customer and its lenders.

If the customer subsequently enters bankruptcy, the difference becomes more pronounced. Secured creditors generally have claims against specified assets, while ordinary trade creditors often hold unsecured claims. Certain suppliers may qualify for preferential treatment, but others must await whatever recovery the bankruptcy process permits.

One way suppliers can protect themselves against certain customer credit risks is through non-recourse factoring. Under an appropriately structured arrangement, the factor assumes defined risks, including qualifying customer insolvency. Commercial disputes and other contractual exclusions remain important.

Saks provides a concrete illustration. Its suppliers were already carrying substantial unpaid balances when additional financing was arranged. Bankruptcy did not put those suppliers on the same footing as its secured lenders.

A risk that sits outside the bond market

Much of the current commentary concerns whether investors have adequately priced the risks in corporate debt and private credit.

For smaller businesses, the exposure may be considerably less obvious.

They need not own a corporate bond, invest in a private-credit fund or have borrowed from either market. Their connection may simply be an invoice payable by a company whose financial position is deteriorating.

There is an important limit to this argument: Moody’s has not demonstrated that borrowers obtaining lender concessions systematically delay payments to suppliers.

What its research does establish is that formal defaults provide an incomplete account of corporate credit deterioration.

For suppliers, that raises a more searching question than whether a customer has historically paid on time: what financial concessions might that customer already have requested from creditors who know considerably more about its circumstances?

And if trouble eventually arrives, which creditors have secured their position, and which are still waiting to be paid?