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Negotiating with your bank or creditors can be one of the simplest methods to ease financial stress. Whether you’re seeking a moratorium, payment plan, reduced lump sum or a waived debt, it really is an ‘it doesn’t hurt to ask’ situation. Through negotiating, your business may have the potential to avoid cash flow issues, garnishment or insolvency. We share our top tips below for effective negotiations:

Check What You Can Afford Prior To Negotiating 

It is essential to closely analyse your financial situation before you begin discussions with your creditors. By understanding past spending habits and average expenses, you can more accurately predict your financial future and in turn, the kind of agreement you will be able to honour. 

The main types of agreements include:

  • Moratorium
    A moratorium is a postponement of a debt’s due date. Unless agreed otherwise, this generally does not alter the amount of debt. If considering requesting a moratorium, it’s a good idea to also request that no interest or additional fees be added in that time.

  • Payment Plan
    Negotiating a payment plan is an effective way to take pressure off your cash flow. With a payment plan, the debt is paid off gradually as instalments over a set period of time.

  • Reduced Lump Sum
    If you are in a particularly difficult financial situation and are unable to devise a way to pay the entire debt, some creditors may agree to reducing the debt. Sometimes, a reduced total can be better for creditors than waiting for payment or risking that the debt doesn’t get paid at all.

  • Waiving The Debt
    In the event that your business is experiencing severe financial stress or is insolvent, you may be able to request to have the debt ‘written off’. Generally, this will require a substantial amount of documentation to prove your situation and inability to pay.

Do It In Writing

It is wise to keep a paper trail throughout the negotiations, as well as the final agreement. This ensures nothing is missed, forgotten or ‘lost in translation’ and that each party fully understands their obligations.

Stick To The Arrangement

It is both ethically and legally important to stick to the agreement you have negotiated. Not only will this help to maintain a positive relationship with your creditor, but it can avoid more serious situations; For example, if a payment plan is negotiated and you fail to make the agreed payments, the creditor may take legal action to recover the debt in its entirety.

Seek Professional Assistance

Negotiating can be a difficult process and it’s important to fully understand your rights and obligations. By talking to our friendly team at Wisdom Business Consultants, we can assist in negotiating an outcome that is beneficial for everyone.

To get started, contact us here today!

References

Detweiler, ‘10 Tips For Negotiating With All Types Of Creditors’, Market Watch, online, https://www.marketwatch.com/story/10-tips-for-negotiating-with-all-types-of-creditors-2019-09-13 (Accessed 20 June 2022)