There are times when cash flow becomes very short for your business and you may have fallen behind in payments to your suppliers.
While it may not be easy, talking to your creditors has to be done. Unanswered collection calls are the quickest way to see your company fall into a legal morass that will end badly. Whether it is the actual creditor or a collection agency, providing no information (also known as running and hiding) inevitably takes the action one step further into a legal process until you may end up in court or even in bankruptcy.
If you can’t pay your bills in full, work out a plan of partial payments or extend the deadline for sending a check. You can work this plan out on a spreadsheet (every business owner should be very comfortable around a spreadsheet – if not, go get trained or learn on your own – just be sure it is a tool you know how to use!) Look at every possibility and be certain that you can present a plan that you can handle. It makes no sense to propose a payback if you cannot meet it.
Then you need to present this plan. If you are really uncomfortable about having a conversation with your creditors, start the dialogue with a short letter. One caution here is to avoid making any promises. You don’t know yet what ones you can keep. Try something along the lines of:
“Dear Supplier: You may have noticed that recently our payments have been slower than you normally expect from our company. Our cash flow has been strained by a shorter than normal summer and lower than expected sales. We are all working diligently to correct our problems and hope to be back to a better schedule soon. We will be in touch shortly to give you an update on our progress. We appreciate our long-term business relationship and thank you in advance for your cooperation. Sincerely, ABC Company.
People will talk. If all they have heard from you is silence, it is likely that strong action will be taken, including legal action. You need a chance to explain the circumstances of your company’s current situation and then describe your strategy for changing those circumstances. Your own spin on the subject will be much more positive than someone unfamiliar with your circumstances.
And finally, a creditor is less likely to take major action against someone with a recognizable name and personality – so make those calls!
