Struggling to Stay Afloat, but want to Pay All your Business’s Creditors in Full?

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I was speaking with an entrepreneur this week who is struggling to stay afloat, but wants to pay all his business creditors in full.  It’s an admirable goal, given his situation.  But it’s wishful thinking.

If he holds this course, without being able to immediately boost his declining top line, he’s likely to go down like the Titanic.  And that’s bad news for unsecured creditors, his employees and his family, who would all lose out, big time.

Most business owners are honest and ethical.  If they run into serious cash flow issues, they naturally still want to pay everyone everything owed.  We all expect to get paid, as well as to honor our commitments to others.  But our clients and customers don’t help us by closing their doors without notice, before we know they’re in trouble.

Companies that extend business credit see both sides of this picture.  If a debtor firm disappears without a trace, it can cause real grief and anger, depending on the size of the account and the lost future business.  But there’s the remorseful feeling that they could have been helped, had they been open about their situation and discussed a potential solution at an appropriate time, earlier on.

If your receivable is late it makes sense, particularly in this economic environment, to keep close to your customer, especially if the sum is significant.  By the same token, if your payables have unexpectedly outstripped your ability to service debt with available revenues, you are duty bound to communicate this fact to creditors.  Not only that, you need to try to reconcile their needs with your firm’s abilities.

In the final analysis, our best interests are served by looking after our own welfare, and that of our families and employees.  Management of large companies in trouble know that, which is why they are so ready to file for Chapter 11 bankruptcy protection, to try to restructure and save themselves, irrespective of the impact on creditors.

The best outcome for financially troubled small to medium-sized businesses can be to engage a paid-by-results business debt workout and turnaround specialist.  If your firm is in real trouble, divest yourself of the notion that you have to pay all your creditors one hundred percent of that owed.  They are likely to settle for much less if a professional presents them, or their agents, with a true and forthright written account of your company’s situation and what is likely to happen if you can not gain concessions from your creditors in general.

The bankruptcy courts are full of cases where business people wanted to pay everyone in full.  It makes sense to recognize, early enough to make a difference, that you have to communicate clearly and effectively with creditors and to do deals based on reality.  We do this for clients on a regular basis.  It’s called a “debt workout.”  There’s no shame to it.  You’ll likely be thanked for your honesty.  You’ll save everyone a great deal of grief, given the alternatives, while providing suppliers with your future customer value.  Your business will be given a second chance to survive and ramp up revenues.  And what could be better than that?

 

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