This article summarizes how working with your creditors is crucial for maintaining a healthy business relationship and managing finances effectively.
Here are some strategies:
- Open Communication: Maintain regular communication with your creditors. Keep them informed about your business situation and any potential issues with payments AND have the proof of the situation easily available: Profit/Loss, Bank Account Information, proof of hardship, etc..
- Understand Your Obligations: Review your contracts and understand your payment terms, interest rates, and any penalties for late payments.
- Negotiate Terms: If you're facing financial difficulties, reach out to negotiate more favorable payment terms, such as short-term payment reduction or payment relief while understanding the Creditor may want some concessions such as added interest, fees or the issuance of a Personal Guarantee towards the restructured loan. The Lender must protect their interests and profitability while also attempting to help Merchants who hit a financial challenge.
- Prioritize Payments: Identify which creditors are your best partners and are most interested in your success. If you have multiple lines of business with a creditor such as growth capital, insurance and banking - reach out to them first as they support a larger portion of your business.
- Create a Payment Plan: Develop a realistic budget and payment plan that outlines how you will manage your debts over time. Remember, taking a loan and immediately asking for payment relief appears bad to the Lender. Expect them to be realistic in how they allow you to pay back your obligation while also protecting their financial interests.
- Maintain a Positive Relationship: Treat creditors respectfully and professionally. A good relationship can lead to better terms and more flexibility.
- Consider Refinancing: If possible, explore refinancing options that could lower your monthly payments or consolidate debts.
- Stay Honest: Be transparent about your situation. Most creditors appreciate honesty and may be more willing to work with you if they understand your circumstances.
- Avoid “Debt Restructuring Companies” or organizations that imply they can save you money, extend terms, etc, but ‘for a fee’. Most of what they do can be done by you if you follow the information above.
By approaching creditors thoughtfully and proactively, you can better manage your business's financial health.