If business cashflow is tight, and you are repeatedly unable to pay the bills on time, we advise putting a plan in place and then picking up the phone and addressing your problems head on. With that in mind, below are a few tips for how to plan your creditor negotiations.
Request any key documents
It is always important to make sure that you and the creditors are reading from the same page. If your negotiations rely on specific documents such as terms and conditions or guarantees and you do not have these to hand ask them to send you a copy. Unfortunately you cannot always accept what creditors are saying at face value, particularly when they are due significant amounts of money.
Personal guarantees are one very good example of this. Often creditors will threaten to enforce these, however if you do not recall signing one you should request a copy immediately. If a validly incorporated personal guarantee cannot be produced it is unlikely the creditor will be able to pursue you personally for the outstanding balance.
If it emerges the creditor does not have a fall back position such as a personal guarantee they may become less aggressive to avoid forcing your company into insolvency.
Set out what you can afford
In preparation for your discussions you should prepare profit and loss forecasts, cash flow forecasts and, if relevant, a personal income and expenditure statement. The final figure from the forecasts should then be divided up between the creditors. To avoid showing preference to one creditor over another this should be done pro-rata based on the level of debt they are due. Most importantly the forecasts must be realistic. It is better to be prudent and to pay creditors more when you can afford it than to over promise and not deliver.
The forecasts should also be understandable to a third party as providing these to creditors will reiterate that this is all you are able to pay. A well prepared and professional document again shows you are serious about repayment and shows transparency of the scale of the problem to creditors. The more open you are the more trust is built. Hiding things and creditors finding out later will only make matters worse.
Keep your story straight and a level head
Focus on the most prominent reason you are unable to make payment at this time. In most industries there is plenty of gossip to go around. If you start giving different stories to different creditors and they find out this will arouse suspicion, causing them to pursue you harder.
You should also try to avoid getting emotional when speaking to creditors. You may not like what they have to say initially but getting angry or upset can only make matters worse. Honest level headed negotiation will produce the best outcome.
Taking an active approach with your creditors generally adds sincerity that you have every intention of bringing payments up to date as soon as you are able to. One of the best ways to express this is to ask questions. The benefit of this is twofold:
- Creditors feel like you are actually listening to them.
- You can obtain additional information of use in your negotiation.
Even when you are unable to make payment you can find out useful information such as:
- What the creditor may be willing to accept to settle the debt.
- The level of instalments that will hold off further action.
- What recovery action they intend to take.
- When they intend to take this action.
- Whether they are willing to take back surplus stock under an ROT agreement to reduce the debt.
Keep notes of any discussions you have with creditors and put any dates for planned legal action into your calendar so you can deal with them efficiently.
Keep all correspondence and get agreements in writing
For your own records and to keep track of your situation you should ensure you retain copies of all documents. These should also be filed so they can be easily managed and accessed. The simplest way to do this would be to scan everything and store it on a cloud based program such as Google Drive or Dropbox. This keeps down the level of paperwork and means you can access the important documents from anywhere.
If you reach an agreement with your creditor for payments to be made over time or a reduced balance in full and final settlement of the debt you should obtain this in writing. An email confirmation should be the minimum you obtain, however an agreement signed by both you and the creditor is the ideal. The agreement does not need to be a long document and if you make it easy for them by preparing this for them to sign this will be the quickest way to obtain this level of confirmation.
Having the confirmation in writing means that if you are dealing with a large company or your regular contact is replaced you will have a record of any agreement in place for any other party or the court if they take further legal action.
Stick to your promises
If you are finally successful in negotiating a repayment plan or otherwise with your creditors the most important thing to do is stick to it. Missing payment dates or paying less than agreed will destroy all the goodwill you have built in your negotiation and it is unlikely they will hold off taking legal recovery action any longer.
Finally, if you are unsuccessful in your negotiations, your business takes an unexpected turn meaning you are unable to meet your obligations or you simply do not feel you are able to deal with the process alone then get help. You can seek assistance from your accountant, a solicitor if there are disputes over the debts and a licenced insolvency practitioner, such as ourselves.
The team behind Business Rescue Expert have been operating as a business advice and insolvency practice for over 12 years providing same day advice to businesses across the UK.
Thank you to Chris Horner of Business Rescue Expert for providing this blog post.
Please visit https://www.businessrescueexpert.co.uk/ for more business rescue advice.