The Settlement Letter, often called the Settlement Proposal, can be a highly effective tool in the negotiation process. As with many things, this proposal should be a form of sales pitch and not completely about facts. Add in elements that will endear the reader to your plight. Include hardships and any story elements you can think of.

When you are negotiate on the telephone with attorneys, collection agencies, or collection attorneys, one may encounter an impersonal, or even rude attitude on the part of the person you are negotiating with. Do not take this personally. The reasons for this behavior are varied but can be reduced or even eliminated by negotiating in written form.

When one negotiates with a general practice attorney representing a creditor, this attorney is typically motivated to get the file “off their desk.” If a relatively minor amount of money is owed to the creditor, the attorney may not wish to invest a lot of time on the case since the fees will be nominal or non-existent. Many general practice attorneys have indicated that they are handling this case for their client because they represent the client’s other business interests and the attorney may be doing this task as “a favor” to their client, but would otherwise not be doing it.

In this scenario the attorney may indicate that if a reasonable settlement can be achieved, they would be willing to present it to their client. They may even advise the creditor to seriously consider the Settlement Proposal. This is especially true if the consultant representing the debtor, or the actual debtor, has properly set the stage to reflect the debtor’s deteriorating position. In effect, if you can “sell the settlement” to the attorney, the attorney will probably “sell it” to their client.

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andre@andrelarabie.com

When you negotiate to reduce your overall commercial debt, it is a good idea to use a Settlement Letter to communicate your offers.

This form of presentation allows you to take full control over the presentation.
One element of the Settlement Letter should personalize the problems you are facing. This element of the settlement letter allows you to “humanize” your plight and gain sympathy. This is where the “storytelling” aspect of the settlement negotiations comes into play. This section will be the “setup” to provide a solution to the problem(s) you are facing, as well as a justification for considering accepting the settlement offer. Therefore, the importance of this aspect of the settlement letter cannot be overstated and should be addressed with keen interest.

It is important to realize that negotiating directly with a creditor can be very different than negotiating with attorneys or collection agencies. When one business owner (the debtor) negotiates directly with another business owner (the creditor), the creditor may have a more personal understanding or sympathy to the situation. In fact, the creditor may indicate that they have experienced similar accounts payable problems at some point in the past. As such, the negotiations may be more congenial and personal. This makes personalizing the problem all the more effective.

Business owners usually have a personal awareness and understanding of the intrinsic value associated with “sweat equity,” “goodwill,” and other aspects of their business that make it personal to them and their customers. In other words, business owners have a more personal feeling about their business and may be more compassionate when it comes time to negotiate a settlement. Obviously, these negotiations may proceed more smoothly.

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andre@andrelarabie.com

If your company is distressed and facing bankruptcy, I have found that when your position becomes public to your vendors, suppliers, bankers and competitors, every creditor will want to get what they can from this “fire sale” before funds are no longer available. This sets the stage for settlement.

Everyone is in fear of ending up with nothing when all the vultures swoop in to tear apart your business. This makes anyone and everyone more likely to take your settlement offer and not be too picky when it comes to the final agreement.

When appropriate to do so, I would like to suggest some of the following solutions to be inserted in the settlement letter:
• A straight, one-time payment with reduction of amount owed, plus any accrued costs, fees or interest.
• Survival payments provided to allow you to remain active, as an ongoing, viable concern, perhaps while bridge financing or accounts receivable factoring is arranged.
• Graduated workout payments to continue the business relationship between you and the creditor. This option may allow the creditor to recover some, or all, of their costs over a period of time, if the creditor agrees to continue the relationship, even if on a cash only basis.
• Schedule monthly payments, perhaps with a balloon payment at the beginning or end of the settlement terms.

Properly and professionally worded settlement offers typically receive the most expeditious responses. One may even combine elements to continue providing to the creditor reasons to accept the offer. Suppose the letter has outlined the desperate financial situation facing you. This will increase the overall sense of urgency.

www.andrelarabie.com

andre@andrelarabie.com