HMV has called suppliers to an urgent meeting on Monday, the same day as the troubled entertainment chain is due to tell the City it has racked up first half losses of nearly £40m and its busy Christmas trading period has failed to provide the hoped-for bounce in sales.

One supplier told the Guardian it had stopped trading with the group in recent months rather than risk not getting paid if it encounters financial difficulties while others have asked for stringent terms such as payments in advance.

One music wholesaler said film studios and music labels, particularly Universal, were shouldering much of the credit risk to keep the business afloat. HMV, the last national music and DVD chain on the high street, has struggled in recent years hit by rising internet sales, downloads and competition from supermarkets.

The company has an estimated net debt of £134m and even higher liabilities in future rent commitments stretching to an average of five and a half years, according to its annual report. HMV, which faces a quarterly rent bill at the end of the month, had identified 40 stores for closure this year, but has so far reduced its shop numbers by just 29 to 256. Its problems have weighed on the group's share price which closed the week at 3.87p, valuing the company at £16m. Some analysts believe HMV cannot survive without a rights issue in the new year. Other industry sources speculated that Universal may intervene with a rescue offer for the business. Such a white knight deal would see HMV reunited with its former sister company EMI, the recorded music arm of which Universal agreed to acquire last month. HMV was spun out of EMI in 1998.

The 90-year-old retailer, famous for its Nipper the dog trademark, has been hammered by the recession as well as online and supermarket competition. At last count like-for-like sales were down 15% as demand for CDs and DVDs fell away.

HMV came close to collapse this year after the weak consumer environment coupled with the collapse in trade resulted in growing debts. To buy time chief executive Simon Fox sold off the Waterstone's chain, raising £53m. He is trying to recast the business as an entertainment group, selling concert tickets and hosting festivals and replacing some of the CD and DVD displays with technology products such as tablet computers and iPods. It has also moved into the £150m booming specialist headphones market endorsed by pop stars such as Dr Dre and Lady Gaga.

The retailer generates 40% of sales and the lion's share of its profits at Christmas but analysts do not expect the retailer to be able to make up the ground this year. This time last year HMV issued a heavy profits warning ahead of Christmas after trading came to a virtual standstill because of more than two weeks of heavy snowfall. Trading patterns this year are believed to have been more normal, but subdued.

Retail analyst Nick Bubb has pencilled in loss of £38m for six months to the end of October and thinks it would be lucky to even cancel that out at the full year stage. "Next week is seriously make or break for HMV: if it goes well and they can just about get to break-even for the year, then technology will have worked and they will have a story to take to new equity investors. If it goes badly, then the net debt position will be overwhelming and administration will loom next month."

"The key is how much profit, if any, they can make in the seasonally far more important second half," added Bubb. "Clearly, HMV will not survive unless it can raise new equity in the new-year, to cut its borrowings."