In the Frontier Bankruptcy, Did First Data Get What It Deserved?

I am the author of the article. Please print the article in it's entirety so as to not distort the context of the message. I hate that bankruptcy exists at all, but I hate it more when people who claim to be credit professionals engage in the behavior that gives clients no other choice. thank you

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I would like to comment on the colossal error that First Data made in its attempt to "protect itself" from the deteriorating financial condition of Frontier Airlines. While not familiar with the financial conditions of either party, I am an expert in the field of Business-to-Business Credit and would like to shed some light to those who may not know all of the details that go into these kinds of transactions.

According to the Denver Business Journal and other local news agencies, Frontier Airlines stated that its last minute decision to file for Chapter 11 Bankruptcy protection was due to the demands from its credit card processor, First Data Corporation. First Data demanded a 200+ percent increase in cash reserves by the end of the week, "in accordance with our original agreement".

Keeping in mind that the reason for credit is to maximize sales while remaining confident of payment, I will point out how First Data failed to live up to this requirement. I will also then show an example of how First Data could have handled the situation and not be facing the loss they are today.

Since First Data felt the need to "protect itself" from the perceived risk of Frontier's financial condition, its first step should have been to negotiate reasonably with Frontier. Instead, they sent a letter stating their outrageous demands thus backing Frontier into a corner. Frontier responded the way that any other company would with such a deathblow - they filed for bankruptcy. First Data failed to accomplish what it set out to do which was protect itself. They failed to see it from the client's point of view and failed to find a way to accomplish their goal of minimizing risk. In addition, assuming that they wanted to keep Frontier as a profit-producing client, they failed there too. I am just guessing here that Frontier will not use them for credit card processing when all of this blows over. Now First Data has put itself in the worst financial position possible – the client filing Bankruptcy.

A better route for First Data would have been to sit down face-to-face with Frontier since they are both based in the Denver area and a meeting could have taken place with less than a 30-minute drive to a neutral location. The original agreement could have been still been enforced but perhaps a more logical demand, for example, would have been to gradually increase the cash reserve by $3.8 million each week over the next 20 weeks. The dollar amount and the length of time is a very basic management negotiation tool. First Data would have protected itself and Frontier would not now be in Chapter 11.

This type of discussion takes place every day between creditors and businesses of all sizes and every day they are settled to the satisfaction of both parties. Now First Data gets what it deserves – to be left out in the cold after they pushed their client into bankruptcy with excessive demands. This is an example of how NOT to manage business credit. In fact, it is the ultimate failure of any Business Credit Manager.

Louise, you are dead on. First Data did deserved with it got. They had did the same to me, only my business was flourishing, the only problem was that it did more business than what I thought it would do. They shut me down and told me I have to to come up with $75 000 in reserve over night. When I said I would go somewhere else they made my life a living hell. They would not allow me to refund my existing transaction and made me ship $40000 of transaction. If their agenst had properly informed my when I orignally signed up that there would be problems if I past my estimated sales. In fact I had ask and she flatly told me there was no problem. Avoid First Data, Card Service, Paymentech or any company owned by First Data. There is simply not enough competitors out there to encourage First Data to treat their customer with any ounce of respect.