Debt Negotiation for Struggling Business Owners

One of the biggest issues business owners find plaguing them right now is debt. Dealing with mounting debt is a very sensitive issue and something that must be handled with care. The first key to dealing with overwhelming business debt is first to stop the bleeding. You cannot effectively work with creditors when your debt continues to skyrocket. I know you’ve already made cuts and are probably working harder than you ever have before. But you have to stop incurring debt if you will ever get out of it. Second, answer your phone, open your mail and be available to your creditors. Nothing upsets your creditors more than being ignored. The best tactic you can use is to be open and honest about your financial situation, most individuals who call are sympathetic in these times because you are not alone.

Making monthly payment plans for every creditor to reduce debt seems like a good idea to most people, however, the tide can quickly turn and your best intentions are derailed before you’ve made a serious dent in your debt. So many arrangements and obligations get made that they become too hard to follow and too easy to forget. With skyrocketing interest, late fees and accelerated payments, some companies struggle just to make payroll from week to week, let alone pay on past debt. Then your creditors place you on COD, raise your interest rates and those actions complicate matters. Now you have zero cushion in your cash flow. Before making any payment arrangements, determine how much in total you can pay toward your entire debt load each month and then create a schedule for paying your creditors. Make a list of your required monthly payments and then prioritize the payments. Most importantly stay within your total budget!

The next step is to call each of your creditors about your payment ability. First, try to reduce your debt before making a payment plan. Graciously ask for a reduction in interest rates and/or a credit of any late fees. Also, various suppliers may settle for less than the original bill if you can pay them immediately. Don’t be afraid to ask for a discount or reduction, all they can say is no. When starting the negotiating process, always ask for a monthly payment that is less than you can pay. Almost all creditors will reject your first offer and want more. If you start out offering the maximum you can pay, you have no negotiating room. For example, you determine you can pay a particular creditor $300 a month, but when you call, you offer $200 per month. They reject the offer immediately, then you say “I might be able to pay more if you can lower my interest rate or give me longer to pay”, then see what they say. Negotiating with the creditors is a delicate process. If you rush in with your idea off the bat and expect them to go with it, you’ll struggle. This is true especially if you have developed a negative relationship with them.

After you make a payment plan, keep it. If you can’t make a payment, contact them immediately with a good idea of when you can make a payment. Then, of course if things go well you can always pay more than the plan which creditors will find a nice surprise. The key is to actively deal with your debt, not ignore it or hope you win the lottery so you can pay everyone off.

Working with creditors requires time, patience and communication. Some creditors, however, may require a more formal approach, the hardship letter. Read my next article “Writing Effective Hardship Letters.”

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