Behaving politely and honestly when dealing with creditors is essential. Additionally, keep written records of conversations.
Creditors are human too and they have financial objectives that influence their willingness to accept settlement offers. Most creditors tend to favor receiving payment in one lump sum payment instead.
1. Be prepared
Successful negotiations require preparation. Being aware of all types of debt – secured and unsecured – is key. Secured debt is secured against assets such as your home or car that the creditor could take back if payments don’t come through as agreed, while unsecured loans don’t. Having a cash settlement offer ready before beginning negotiations also plays a vital role; most creditors prefer accepting one lump-sum payment over multiple installments since this helps save them money and avoid collection agency fees.
2. Be honest
Creditors and debt collectors often have a financial incentive to settle debts for less than what’s owed, since they purchase these debts at pennies on the dollar and hope to cut losses quickly by reaching settlements quickly. Saving some cash outside your emergency fund to offer as a lump sum payment helps as most creditors expect this type of payment method from debtors.
When dealing with lenders and creditors, honesty is of utmost importance. Explain what led to your debt situation – such as COVID-19 business shutdowns, unemployment, or unexpected expenses – as well as what steps are being taken to correct it. By remaining honest in your story telling and providing accurate details of events leading up to it, trust will build and more likely be given for working out solutions together.
3. Be flexible
While it can be challenging to find a solution that suits both you and your business in times of financial uncertainty, it is crucial that lenders and creditors remain flexible with you – remember they want their money back so it would be preferable if they could negotiate an arrangement rather than be left with nothing at all.
Do your research when it comes to interest rates and terms for loans so that you have an accurate picture of what your negotiating position can be during negotiations. Avoid lowballing them; they’ll soon see right through it! Furthermore, make sure all agreements reached in writing to avoid any future misunderstandings; this protects you should your lender or creditor change their mind about your deal.
4. Be patient
If you find yourself struggling to make debt payments during times of uncertainty such as COVID-19 or the recent shutdown, patience and resourcefulness may be required to find an acceptable solution with your creditors. They may offer to negotiate lower interest rates or lump sum payments in order to save both time and money by not having to chase payments down for payment themselves or risk having it sent directly to collection agencies or the courts; having some cash saved up before entering negotiations can strengthen your position by showing that you’re committed to repaying it immediately.
5. Be assertive
Debt can be an unnerving step for startups, yet necessary in their development. By being prepared, being sincere, and maintaining calm in negotiations with lenders and investors, entrepreneurs can find success securing funding to pay back debts more quickly and responsibly.
Creditors and lenders don’t have to agree with your terms, but they may be more amenable to compromise if you make an acceptable offer. Finally, be sure to have an alternate plan should negotiations not go as expected – just in case. Finally, always get all agreements written down so there won’t be any misunderstandings later! Good luck!
