Suppose you have a prioritized (based upon how critical each is to our business) list of 20 creditors, and number one the list is a $50,000 debt that you owe to a supplier who provides you with raw material that you need to create whatever it is that you produce in your business.
Since this creditor is number one on your list, without that supplier you cannot run the business. You must satisfy this debt or negotiate with them if you are to continue operating. If you don’t address this issue, then that creditor is not going to advance you any more credit and may even ask you to pay the balance before any more goods are delivered.
Some creditors may have a policy requiring you to pay 100% of the delivered invoice amount plus 10% of the total outstanding account balance. If your current balance with that creditor is $50,000 and the delivered invoice amount is $6,000 you would have to pay $11,000 ($6,000 for today’s delivery plus $5,000 against the overall debt) to get the delivery and keep operating.
But suppose for the sake of argument that you do not have the extra ten percent to give because you are really deeply in trouble.
What can you do?
You can negotiate with the creditor. But before you contact them, I can assure you—and I have learned this from 20 years of experience—that unless you have a deep understanding of your current financial situation and the particular approach required for this particular creditor, you really don’t know what to tell them and you do not want to call them until you do.
If you call them now, you will probably end up saying exactly the same thing that all of their other creditors say, and this will get you nowhere. So before you contact them, put together all the reasons you are in financial trouble, all the reasons you are in this turnaround situation—it might be that sales are down, or you might be delinquent with some bank loans and the bank is threatening repossession of assets, or a creditor is threatening with a lawsuit.
Write all of these reasons down.
- Does the business owe money to the IRS?
- How much does it owe to all the creditors?
- Does it owe money to the bank?
- Is it in default now and what is the status of the business?
Contacting your creditor and talking with them is the best approach, and here is why: there are many debtors out there like you who owe them money, and these debtors usually ignore the problem rather than being up front with the creditor. They are silent while you are contacting them directly. For this reason, they will view you in a more positive light. If you introduce you “story element” into the conversation, you will likely gain some sympathy from this creditor and this sympathy may help you in your negotiations later in the process.
André Larabie