Communicating with Creditors in Tough Times

The accumulation of past due accounts, bills, and liabilities is always unpleasant for a business. No one wants to default on their obligations. Negative images are embarrassing. Losing money, especially where there is little or no excess working capital, is extremely stressful. Unless there is a dispute as to the amount owed, when a business defaults on an obligation to a creditor, a choice is made to pay only those bills essential to cover fixed overhead. This allows a business to create time and space to start making profits again. Creditors want to get paid and they don’t want to finance a business plan, especially against their will. When they contact their delinquent accounts and are told that there is a cash flow problem, it stimulates frustration. And if they are ignored, it stimulates anger. That can lead to unpleasant calls, bullying collection agents, and lawsuits from collection attorneys. Communication is the key. To relieve the stress of this situation and to find a mutually-acceptable solution to the problem, it is essential to stay in touch with an unpaid creditor. Always return phone calls and respond to letters and emails. In the response it is important to be honest, which means not making new promises that will be difficult to keep. Don’t inflate the future. And being honest also means telling a creditor that you do not have the funds on hand at this time to send them anything. You can discuss generally what steps the business is taking to restore profitability, such as reducing overhead, starting a new marketing plan, and/or trying to raise capital. Most importantly, you can agree to talk again at a specific time. This is a promise that can be kept. Many creditors understand this and will be patient, especially in this economy. They will accept small monthly payments to maintain good faith in the short run. Eventually, they will enter into longer term installment agreements for the full amount, or even reduce the debt if given a lump sum payment immediately, and even take installment payments for a reduced amount. Until a solution is reached, keep talking. Be prepared to experience the frustration of a creditor without taking it personally. Often judgmental statements are made that sound punishing. Some creditors, collection agents, and attorneys believe that making these kinds of statements will intimidate the debtor into paying them sooner than later. Don’t be intimidated. At the same time, be respectful, and request a date and time for a future call Keep talking. A solution will emerge. I always tell my clients that you have more time to solve the problem than you think.