Reference no: EM133032681

Question - A Canadian Home Furnishings Company Linens N' Things was in poor shape financially in April 2008, and many suppliers stopped shipping merchandise to the retailer because of slow or no payments. In an unusual effort to keep the doors open, the company agreed to pay between 60 and 100 of its suppliers "CBD," or cash before delivery, instead of the more typical one to two months after delivery. Unfortunately for the company, it was still forced to declare bankruptcy. When this happened, suppliers who were owed money faced the consequences. For example, Amcor, an appliance and consumer electronics manufacturer, was owed $3.68 million on a shipment of GPS units. Because of the bankruptcy proceedings, Amcor expected to lose between $500,000 and $750,000 of the amount owed, a significant loss for the relatively small company. Other creditors included Calphalon, Kitchen Aid, and Yankee Candle Co. As this case shows, extending credit can lead to large losses when the customer can't (or won't) pay, and, consequently, credit management is an important aspect of short-term finance.

Required - What is the lesson that you learned in this article and why do you think this topic is relevant in this module?