First Brands Collapse Puts Spotlight on Rogue Receivables, Supplier Financing

There’s an old business adage that where you put your money is your strategy.

But against today’s backdrop of tariff-driven uncertainty, how a business gets its money can be just as strategic. Or as disastrous.

Working capital has never been more important, but as the collapse of First Brands Group, an Ohio-based auto parts conglomerate, reveals, neither has due diligence of supply chain and receivable lending solutions.

A First Brands creditor, Raistone, has alleged that direct lenders, bondholders and other stakeholders have effectively lost track of $2.3 billion in opaque financing vehicles. Under scrutiny are trade receivable financing, reverse factoring, inventory pledges and other off‐balance-sheet constructs that were at the core of how First Brands funded its aggressive acquisition spree.

“The issues surrounding First Brands are the result of decisions and actions at First Brands, including possible fraudulent or otherwise improper activity that is under investigation by the First Brands’ Chief Restructuring Officer and reportedly under investigation by the United States Department of Justice,” said Jefferies CEO Rich Handler in a statement.

A Jefferies fund has over $700 million invested in receivables due by First Brands’ customers.

“When you see one cockroach, there are probably more,” JPMorgan’s CEO Jamie Dimon said on his bank’s earnings call Tuesday (Oct. 14), underscoring the sense that hidden risks may lie dormant across the supplier financing and private credit marketplace. Dimon was referring to the $170 million hit JPMorgan took last month on the earlier collapse of Tricolor, a dealership operator whose bankruptcy has rippled across credit portfolios.

These events may not be an anomaly but a flashpoint in a larger debate: are many credit books under secured, under monitored or overleveraged?

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While certain observers have characterized First Brands as a largely idiosyncratic failure whose lessons may not generalize across the direct lending or private credit universe, concentration and complexity risk are coming back in focus.

One immediate area likely to see scrutiny is the recyclable nature of invoices: how many times can an invoice be leveraged or hypothecated through chains of ownership or special purpose vehicles?

The First Brands case suggests that double-pledging of receivables may have occurred, or that entities downstream repackaged the same collateral for different funders. This kind of “fat tail” risk in receivables collateral chains will now be more attentively monitored and explicitly ruled out, or else heavily capitalized against.

As it relates to the broader credit and asset markets, in remarks made Tuesday, Citigroup CEO Jane Fraser said there are “pockets of valuation frothiness in the market.” JPMorgan Chase CEO Jamie Dimon said many assets look like they are “entering bubble territory.” Goldman Sachs CEO David Solomon said that there is “a fair amount of investor exuberance.”

Regulators are now confronting whether to treat First Brands as a spectacular failure or a cautionary tale demanding greater oversight. The U.S. Trustee’s push for a fast-tracked independent examiner underscores that the case is already beyond standard bankruptcy proceedings.

Read more: Uncertainty Is Complicated, but Working Capital Strategies Should Be Simple 

In accounts payable (AP) systems still largely dominated by fragmented email workflows, PDF invoices and disjointed ERP modules, duplicate entries or malicious replays can slip past deterministic checks like invoice numbers, amounts or vendor names. Without a unified ledger and cross-system controls, one invoice can be mistakenly or intentionally entered twice, or modified or repurposed. Once layered into securitization or factoring stacks, the same invoice may fund two or more credit facilities.

In the private credit world, many transactions depend on the idea that cash flows from receivables are tractable and auditable. But if an invoice can hide in corridors untraced — and if sponsors or operators intentionally obfuscate intercompany flows — then the credit underwriting can be compromised.

A PYMNTS report, “AI Gives Accounts Payable a Seat at the Strategy Table,” describes how machine-learning models are improving invoice matching, enabling AP teams to shift from reactive oversight to proactive risk prevention.

The invoicing dysfunction highlights a broader principle: networks collapse at their weakest node. Supply chains are not just physical flows of goods but financial webs of obligations. The trust underpinning a chain is only as strong as its most opaque link.

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