There are a number of advantages to selling to a publicly traded company
in the U.S., including these:
-
Financial visibility based on the quarterly reporting requirements
mandated by the SEC
-
Audit requirements [also from the SEC]
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The fact that public traded companies take substantially higher
risks if they present fraudulent financial statements... which is
a crime under the U.S. Securities and Exchange Act]
-
The fact that a publicly traded company must disclose material
events of interest to investors and creditors soon after they occur
[using SEC form 8K] rather than waiting for the end of the quarter
to announce the change or problem.
-
The fact that some publicly traded companies are able to raise
cash by selling corporate bonds [in effect, corporate IOUs]
-
The fact that public companies can also raise cash by selling
more stock.
-
Access to detailed footnotes as well as narrative commentaries
about the company's past financial performance, and its future prospects
-
Financial statement analysis on many publicly traded companies
can be obtained on line at no cost - saving trade creditors time
and money.
-
Stock and financial analysts often publish their expert opinions
about public companies for the benefit of anyone who wants to know
more about the companies
-
A public company's stock price is a barometer of the company's
financial health as well as its future prospects. Specifically, a
significant or precipitous drop in the value of a company's stock
might indicate credit problems for the company in the short term.
-
Creditors have access to readily available news and press reports
-
Rating agencies [in particular bond rating services] provide ratings
on public companies that trade creditors can use as an early warning
system for potential financial problems.
-
It is possible to track the status of scheduled debt payments.
-
Insider trading may be used as a harbinger of problems or successes
to come
-
There is more information about the company's competition, and
more data about industry trends and possibly about industry norms.
The disadvantages of selling to a publicly traded company cam include
each of the following:
-
Trade creditors can become overconfident and complacent because
they are selling to a publicly traded company... possibly even a
household name.
-
Audited financial statements could still be inaccurate, or even
fraudulent
-
Press releases made by the company could be misleading
-
It is not uncommon for a large public company to flex its muscles
and try to strong-arm trade creditors into making concessions the
creditor would not make to a smaller or less important customer.
-
It is possible that off balance sheet financing may be hidden
from trade creditors and others.
-
It is possible that stock analyst may be hyping the stock.
-
There is an assumption among trade creditors that public companies
do not fail or file for bankruptcy protection. That assumption is
incorrect.
-
Some public companies have complex debt structures --- hiding
debts in affiliates, subsidiaries, holding companies and shells.
Trade creditors may not have the time, or the expertise to understand
the complexities of such a company's financial reports and as a consequence
may be accepting more credit risk than the creditor was aware of.