Imagine you’re driving on a well-lit motorway. The signs are clear, the rules are known, and every car has the same map. Then someone decides the speed limit doesn’t apply to them. The result isn’t a problem with the road, it’s what happens when confidence outruns caution.

In late September 2025, First Brands Group, the Ohio-based auto parts maker behind FRAM and Trico, filed for Chapter 11 bankruptcy protection in the US Southern District of Texas. The filing listed liabilities between $10 billion and $50 billion, according to Bloomberg. Within days, it was found that the company had arranged $1.1 billion in debtor-in-possession (DIP) financing to stay afloat.

Then came the headlines. A creditor alleging $2.3 billion in missing funds (Bloomberg), the US Department of Justice opening an inquiry (Reuters), and analysts warning that hundreds of collateralised loan obligations (CLOs) could be exposed (Reuters), all telling of just another supply-chain-finance-gone-wrong story. Yet, as with many such collapses, the truth is not simple at all. The risk is that early interpretations may confuse a complex restructuring with the failure of an entire product category.

The bankruptcy filing does not itself allege fraud or concealment but acknowledges a need to review the company’s financing structures and intercompany flows.

What Chapter 11, FASB, and IASB actually mean

A quick translation.

• Chapter 11 is a US process that allows a company to reorganise under court supervision. It is not liquidation (Chapter 7); rather, it offers protection from creditors while management, lenders, and the court negotiate a restructuring.
• FASB, the Financial Accounting Standards Board, sets US Generally Accepted Accounting Principles (GAAP).
• IASB, the International Accounting Standards Board, governs the IFRS standards used globally.

Recent rule changes from both FASB and IASB have required clearer reporting of supplier-finance obligations.

FASB’s ASU 2022-04 requires companies to disclose liabilities under what it terms ‘supplier finance programmes’, effectively payables finance, while IASB’s 2023 amendments to IAS 7 and IFRS 7 require them to show how such arrangements affect cash flows and liquidity*.

These reforms are intended to make supply chain finance more visible, so that investors can see its size, cost, and impact.

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What supply chain finance really is

According to the Global Supply Chain Finance Forum (GSCFF): “Supply Chain Finance is the use of financing and risk-mitigation practices and techniques to optimise the management of the working capital and liquidity invested in supply chain processes and transactions. Visibility of underlying trade flows by the finance provider(s) is a necessary component of such financing arrangements.”

In formal terms, supply chain finance (SCF) refers to a family of techniques used to fund short-term trade flows, as defined by the GSCFF. These include:

• Receivables purchase techniques, such as payables finance, receivables discounting, forfaiting, and factoring.
• Loan-based techniques, such as pre-shipment finance, inventory finance, or asset-based lending.
• Advanced payables techniques, such as dynamic discounting, bank payment undertakings, or corporate payment undertakings.

All of these are linked by a common feature: they are financing or risk-mitigation practices anchored to identifiable, verifiable trade transactions.

In everyday corporate language, however, the term “supply chain finance” is most often used to mean buyer-led payables finance, where a financier advances payment to a supplier once the buyer has approved an invoice, and the buyer then repays the financier at maturity. When structured correctly, it is transparent, short-tenor, and based on genuine, documented trade.

A note on terms

• Payables finance (often called SCF): Buyer-led; the buyer approves an invoice and a financier pays the supplier early, with the buyer paying the financier at maturity.
• Receivables factoring: Supplier-led; the supplier sells invoices (typically 75–90% advance rate) to a factor, with no buyer programme required.
• Inventory / ABL: Loans secured on inventory or receivables under borrowing-base tests.
• Credit insurance: Trade Credit Insurance (TCI) vs Non-Payment Insurance (NPI) – TCI means the insurer monitors obligor credit, NPI places the monitoring responsibility with the bank.

And what it isn’t

SCF should not be confused with other financing forms.

It is not future-receivables or contract financing (where loans are made against work not yet completed).

Nor should it be mistaken for a hidden-debt mechanism, today’s accounting and disclosure rules make such concealment increasingly implausible for regulated institutions.

The problem is that people tend to judge the label, not the structure. They see the word finance and forget that, at its core, this is about trade.

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Why “double (or triple) financing” still happens

In the US, UCC-1 filings and lien searches are standard due diligence to detect collateral conflicts, and intercreditor agreements usually specify who has the first claim on what.

That should catch most clashes. Where things go wrong is operational: invoices left on the seller’s books after being paid under a programme; financing the same cash flows via factoring, payables finance, and an ABL line through subsidiaries or SPEs; weak three-way matching and insufficient cash-flow analytics that would have flagged double billing or unusual payment waterfalls. In some cases, these exposures sat in special purpose vehicles (SPVs) funding intra-group inventory purchases, structures that blurred the line between trade, intercompany, and secured borrowing.

The working hypothesis in market chatter is misuse of multiple working-capital tools, not a gap in accounting standards.

What we know so far

Public filings show that First Brands’ debt exceeded $9 billion, with additional liabilities in lease and factoring structures. According to documents filed on the Kroll restructuring site, a Special Committee has launched an internal review of “factoring and other financing irregularities”.

The filings acknowledge complex overlapping financing arrangements, including receivables, payables, ABL and SPV structures, that are now being reconciled. No findings of wrongdoing have been issued by the court or regulators at this stage.

The filing shows roughly USD 2.3 billion in off-balance-sheet obligations, much of it routed through Viceroy Private Capital Group subsidiaries, including sale-and-leaseback arrangements like the Onset Lease, which the Debtors may ultimately seek to recharacterise as financings rather than true leases.

Ultimately, the case is evolving; nothing in the filings links the bankruptcy to payables finance as a product class.

Who really loses when finance falters

While analysts focus on institutional losses, the immediate pain is often borne by the small and medium-sized enterprises (SMEs) deeper in the supply chain.

When a buyer of this scale enters Chapter 11, every unpaid invoice becomes an unsecured claim. Under bankruptcy law, such trade creditors typically recover only a fraction of what they are owed, often after months or years.

For many small manufacturers (think of the firms that make component parts like gaskets or filters) those payment delays can cause considerable cash flow hardships that could, in some cases cause them to miss payroll or even need to shut down production entirely.

That is the irony. Supply chain finance was created precisely to avoid this scenario. Its purpose is to ensure suppliers have access to liquidity once their work is complete, shielding them from the credit risk of the buyer.

One industry expert said to TTP, “When supply chain finance is used properly, the biggest beneficiaries are the smallest firms. When it isn’t, they’re the ones who pay first and last.”

CLOs, credit funds, and the interconnected world

One of the subplots in this case is exposure through CLOs, the structured credit vehicles that bundle leveraged loans into tranches sold to investors. According to Reuters, Jefferies alone held $715 million in receivables tied to First Brands, distributed across multiple CLOs.

When corporate receivables and supplier finance enter structured markets, investors in those instruments may not realise how far “trade-related” risk extends into portfolios labelled as credit. 

It is a reminder that digitisation and data transparency are becoming ever more necessary. Today, risks in trade finance tend to live in the visibility gaps that exist between systems. When lenders, funds, and buyers all operate within closed data environments, a single receivable can be financed twice simply because no one can see that it has already been.

Recent FT reporting underscores the bank–private–credit interlink: banks’ indirect exposures via funds and warehousing lines can obscure who holds underwriting or operational risk, encouraging late-cycle shortcuts. That overlap is visible here too: filings name both US and European lenders, including Bank of America and Austria’s Bawag, alongside exposures held by private credit funds such as Jefferies and UBS-linked vehicles.

Filing data also shows substantial off-balance SPV obligations (notably the ‘Onset’ lease), which the Debtors may seek to recharacterise as financings.

Thankfully, that is beginning to change.

Several jurisdictions are now experimenting with invoice-registry models where, instead of storing sensitive data, they capture the digital fingerprint of an invoice, allowing financiers to verify instantly whether that asset is already spoken for. Combined with consistent definitions (such as those set out by the Global Supply Chain Finance Forum), this framework can make digital trade assets both verifiable and enforceable. 

A note on insurance

Where Trade Credit Insurance (TCI) or Non-Payment Insurance (NPI) is used, the bank or lender is responsible for presenting and disclosing the underlying risk to the insurer, including obligor details, concentrations, and exposure thresholds.

In TCI, the policy may cover a portfolio of buyers; in NPI, it may reference specific transactions, but in both cases, the underwriting depends on the bank’s representations and ongoing reporting rather than the insurer’s active monitoring.

Recoveries and claims, if any, will hinge on structure, documentation, and the bank’s compliance with its obligations, not merely on the existence of a policy.

It’s too early to infer outcomes, but this distinction matters for post-mortems.

Digitisation as part of the solution

Technology cannot replace governance, but it can strengthen it. Alongside traditional UCC-1 lien checks, invoice-fingerprint registries and interoperable data standards can help prevent re-pledging across banks, factors, and funds. 

Coupling this with true, full-volume cash-flow analysis, payer-level reconciliations, anomaly detection, and duplicate-invoice flags materially reduces the odds of silent double financing.

Reforms such as the UK Electronic Trade Documents Act (ETDA) and the UNCITRAL Model Law on Electronic Transferable Records (MLETR) are paving the way for electronic transferable documents, for example, bills of lading, bills of exchange, and promissory notes, to carry the same legal weight as their paper equivalents.

However, these frameworks do not apply to non-transferable instruments such as invoices, even if the receivables predicated thereon may be transferable by applicable law.

That said, their principles, legal recognition of digital possession and transfer of title, are beginning to influence broader digital-trade frameworks and could, in time, underpin secure registries for receivables and other trade-related assets.

Clarity, not cancellation

The First Brands case will take time to unfold. The US Bankruptcy Court, the creditors’ committee, and regulators will determine what actually happened and who bears responsibility.

What is clear from the filing is that payables finance accounts for less than 10 per cent of total exposures, underscoring that the issue lies in leverage and intercompany structuring, not in the SCF model itself.

Until then, it is worth remembering that supply chain finance is a mainstream, legitimate, and tightly defined practice used daily by thousands of companies to fund trade.

In an era of fragile logistics, tariffs, and high interest rates, it is one of the few instruments that can keep goods – and livelihoods – moving. If we conflate one company’s distress with an entire ecosystem, we risk dismantling a bridge that still connects finance to the real economy.

The call now is for clarity, not cancellation, and for remembering that trust in finance, like any motorway, is safest when everyone keeps to their lane and respects the limits.

Footnote

*¹ FASB ASU 2022-04 uses the formal term “Supplier Finance Programs”, while the IASB amendments use “Supplier Finance Arrangements.” Both bodies deliberately avoid “supply chain finance,” which in industry usage refers to a broader family of working-capital techniques.