When dealing with vendors, suppliers, bankers and creditors, tell the truth. Do not be deceitful. Ultimately, deceit will only work against you.
It is ok to give them the Heisman maneuver. If you don’t follow college football, visit http://www.heisman.com/history/trophy_history.php to see the Heisman trophy. Pretend you are the running back, cash is the football, and your creditors are trying to force a fumble. Hold onto the football.
It is not ok to use the Arpege stratagem (“Promise her anything, but give her Arpege” was the slogan on their television ads many years ago.) This may work for a week or two, but you will quickly find yourself with no product and no credibility. It didn’t work with your wife; it won’t work with your creditors.
It is ok to negotiate – hard – with your creditors. Offer partial payments, cash on delivery, payments on past invoices if they continue to ship current product—whatever it takes to keep your business running. But keep in mind the first rule, always tell the truth.
Be aware that some of these practices may become preferential payments if you end up in bankruptcy court. This will most likely become the recipients’ problems, not yours. A full discussion of preferences is best handled with your bankruptcy counsel, and our goal is that you never have to meet him.
You can make conditional promises. “We can pay you Friday since I expect Customer A (don’t name them), to pay $XX (don’t name the amount either) on Thursday. If Customer A doesn’t pay on Thursday, we can only pay (some other, lower) amount.” Be sure to call your creditors if Customer A doesn’t come through and you’ll miss your promise.
In fact, call your creditors even if Customer A does pay you. (You can always give him your check number and the exact amount of the check. Credit managers love writing the check number and amount—it shows they are doing their jobs.) He’ll be happy to get some good news, and he’ll want to know how much you’ll pay him next week. This communication will help re-build the trust between you and your creditor. Remember rule number one.
You want to be specific about your plan, but vague about which customers hold your lifeblood in their hands. You absolutely don’t want your creditors to start talking to your customers.
Don’t be bullied by collection agencies. They are experts in collections—smart, well-trained, smooth-talking and persistent. If you are dealing with lots of collection agencies, you will feel overwhelmed, and it may be time to call in some expert help.
There is such a thing as lender fatigue. Sometimes both you and your suppliers’ collections managers are just sick and tired of each other. It is ok to ask to speak to supervisors, managers, the company president, owner, etc. You may be able to get more understanding (and a key shipment) from a new listener. But remember rule one.
It is ok to look for new vendors, suppliers, bankers and other creditors. Generally, serious problems seem to quickly become common knowledge, though, so don’t be disappointed if there aren’t lots of folks offering product on open account or new bankers offering unsecured working capital lines of credit at LIBOR plus 10 basis points.
And always remember rule number one—Tell the truth.
Has a lie with a creditor ever gotten you in hot water? Please share in the comments below.