Receivables Insurers have warned of Sears Canada bankruptcy potential since 2015

The Receivables Association of Canada (RIAC) is highlighting the importance of Receivables Insurance considering the recent announcement that Sears Canada is seeking protection from creditors. Receivables insurance underwriters in Canada have been monitoring Sears Canada financial woes for the last 24 months and collectively the recent filing for protection by the company comes as no surprise to the industry.

“Sears Canada filing for protection under the Companies’ Creditors Arrangement Act (CCCA) was not a surprise for the receivables insurance underwriters operating in Canada” says Mark Attley, President of RIAC. “Our members collectively agree the demise has been a long time coming.” 

The challenges of Sears Canada aren’t unique and highlights why receivables insurance underwriters and brokers look beyond the balance sheet to identify potential customer risks. A review of Sears Canada’s financial statements show that the company had been reporting profit until 2015 and, on the face of it, appeared to be financially solvent. However, receivables insurance analysts have long been taking note of poor operating results (as opposed to bottom line profit which was regularly enhanced by fixed asset sales which let to one-time income events that were not related to on-going operations).

Despite billions of dollars in sales, an enormously long and profitable history in Canada and the Sears brand being recognized as a household name amongst Canadian consumers, receivables insurance underwriting analysts identified even as far out as 24-months ago that the company’s management was rapidly falling behind current trends and continuous misspending left retail stores less presentable resulting in shrinking sales. With this insight, receivables insurers had been advising their clients since 2015 that they should be reducing dependences on sales to Sears Canada. Manufacturers and suppliers receiving and acting on that advice should not feel the severe disruption caused by the protection filing last week.

“For those watching the retail sector closely, the Sears case is considerably different from the Target Canada case. In that instance, like Sears but for very different reasons, Target was losing money. However, unlike Sears, the US parent was doing relatively well and manufacturers and suppliers expected that the US parent company would support Target Canada until the hump was crossed and profitability attained.” said Christopher Short, Chairman of RIAC and Country Manager for Atradius Canada. “Obviously, this was not the case and underwriters ended up paying millions of dollars in claims. The disruption was considerable for virtually all suppliers but the good news for suppliers that were insured, the upset will be diluted enabling those companies to fund the reorientation of their business with the proceeds of their claim payment.”

The Receivables Insurance Association of Canada promotes best practices for Canadian companies doing business domestically or internationally which includes Receivables Insurance as part of a healthy receivables and balance sheet management program. RIAC members collectively insure more than $100 Billion annually in domestic and international trade for Canadian companies.