First Brands collapsed with billions of receivables finance lenders could not find. The lesson for funds: every receivable must pass three tests.
First Brands Group made wiper blades, spark plugs and oil filters. Its brands included Trico, FRAM and Autolite, and it turned over around $5bn a year.
It also ran one of the larger receivables financing programmes in the market. When the company filed for bankruptcy in the US in September 2025, the funds that had bought its receivables went looking for the cash. One, Raistone, said $2.3bn had "simply vanished".
A year on, the case has been converted from a restructuring to a straight liquidation, and the founder and his brother face fraud charges. For anyone who lends against invoices or buys them, it is worth understanding what went wrong, because the failure was not in the asset class. It was in the checks.
Alongside $6.2bn of conventional debt, First Brands carried around $4.6bn of off-balance-sheet financing, much of it secured on or funded by receivables and inventory.
US prosecutors allege that invoices were pledged to more than one financier, so that several funders believed they owned or had first claim on the same receivables. The founder, Patrick James, and his brother Edward were indicted in January 2026. They have not yet been tried, and the allegations are unproven.
The creditor list reads like a who's who of the market. Funds linked to Jefferies had around $715m of exposure. UBS funds had more than $500m. A joint venture between Norinchukin Bank and Mitsui had around $1.75bn. After a reorganisation plan was rejected in August 2026, the case was converted to a Chapter 7 liquidation on 1 September.
These are sophisticated lenders with serious credit teams. That is the point. The risk that hurt them was not the one most credit processes are built to measure.
A receivable is only as good as three things.
The first test is the one everybody runs. Is the customer who owes the invoice creditworthy? Will it still be solvent when the invoice falls due?
At First Brands, the obligor risk does not appear to have been the problem. The losses came from somewhere else. Most credit processes, ratings and models concentrate here, and for good reason. But it is only one of the three ways a receivable can fail.
The second test is existence. Did the goods ship? Was the invoice issued? Does the customer accept that it owes this amount, on these terms, by this date?
Receivables can fail this test without anyone committing fraud. Credit notes, rebates, returns, disputes and contra-trading all reduce what an obligor will actually pay. The industry calls it dilution. In the worst cases the receivable never existed at all.
The third test is title. Does the fund that bought the receivable, or lent against it, actually have the first and only claim on the cash?
This is where First Brands appears to have failed most badly. If the same invoice is sold or pledged twice, two funds can each hold perfect paperwork for an asset that can only pay one of them.
Registers help, but they are not complete. In the US, lenders file UCC financing statements. In the UK, charges over book debts are registered at Companies House, but an outright sale of receivables generally is not. A clean search is evidence, not proof.
Too many structures check the first test carefully and assume the other two.
The most effective check on the second and third tests is also one of the oldest: ask the customer. Confirm a sample of invoices directly with the obligor. Ask whether it recognises the amount, the due date and the bank account it has been told to pay. Where the structure allows it, have the obligor pay into an account the funder controls.
Other checks worth building in:
None of this is new. What First Brands showed is how often it is skipped when the obligors are strong names and the seller is growing.
Trade credit insurance is built for the first test. It covers the risk that an obligor becomes insolvent or simply fails to pay, and for many funds it is what makes a concentrated receivables book financeable.
It is not built for the second and third. A credit policy pays when a valid, undisputed debt goes unpaid because the obligor cannot or will not pay. It will not pay for an invoice that never existed, or for one that was sold to someone else first. Funds that assume their credit insurance protects them against seller fraud are carrying a risk they may not have priced.
Other parts of the insurance market can respond to some of those risks, and the right answer depends on the structure. The useful starting point is to map each of the three tests to whoever is actually carrying it: the obligor, the seller, the fund, or an insurer.
If you finance receivables and would like to walk through how your structure holds up against the three tests, get in touch. More on how we work with lenders is on our For Financiers page.
