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Dealing with Creditors, Vendors & Suppliers

Dealing with Creditors, Vendors & Suppliers When You're Behind on Payments

You just got off the phone and it's not good news. The check you were expecting won't be coming today, tomorrow, or maybe ever! "How in the world am I going to pay for all the bills on this job? I've already pushed my vendors and suppliers to the breaking point" now I don't know how I am going to make payroll."

Sound familiar? Many contractors are currently dealing with these same difficult questions. Unfortunately, I can't answer the most important ones for you (when, where, and how much your next payment is going to be), but I am in a position to pass on a bit of advice regarding what you might say to the suppliers and vendors you can't pay as promised.

Communication is Critical!

Tell your vendors or creditors what the circumstances are and what you anticipate happening. Not only does this give them vital information but it will also help re-establish your professional credibility. Here are several ideas for efficiently connecting with your vendors or creditors:

- Communicating with the right person is imperative in effectively working on the challenges you face. Ultimately, the credit department (i.e., accounts receivables, collections, customer service) will be the ones asking the questions, and your salesman may not be authorized to work on this for you. In times of significant delinquency, speak with the credit department representative directly. Developing a relationship with the credit department is always a good idea, regardless of the circumstances.

- Start the conversation with hard facts, then share all other pertinent details. Don't just tell a creditor what you think they want to hear "“ "I'm going to pay you on November 12th." Explain how you're going to do that. If you are promising to pay on the 12th of the month because the general contractor committed to you that he would pay you on the 11th because the owner and bank said they would pay them on the 10th" let your creditor know that. Payments that are contingent on third parties can easily result in you being unable to pay, through no fault of your own. Make sure you inform your creditors or vendors of all the variables. Also, don't make misleading commitments. For example, if you state, "When I receive my next job payment check, it's going right to you," it could be interpreted as a commitment to pay the entire debt. Always clearly state the precise dollar amount you will be paying. Any confusion on the issue puts you in hotter water with the creditor, as it continues to damage your creditability with them. Think about your future business relationships.

- Develop a plan. Suppliers and vendors are more willing to work with you if you have a feasible plan to recover from the rough patch, and you've established a relationship of trust. Your plan is better than no money coming at all. However, you need to be aware that creditors are reluctant to give up any lien rights in the plan unless alternative collateral is offered. Also, some suppliers may have the ability to provide promissory note options which will allow you to pay your balance over time. Keep in mind this is often the last option available, and that you will may have to offer additional security for this relief.

- Be proactive. Instead of waiting for a call regarding payments you know you cannot make" take your best plan of action and notify your creditor. The chances of your proposal being accepted go up significantly if you make the first call. Consider sending an email to all creditors or vendors involved. It will save time by eliminating the need to explain the predicament a dozen times, and it makes updates very easy. Additionally, you and your creditor are now working together on the problem, and they know you are making an effort.

- Be honest. If you have no way to meet your obligation, be straightforward about it. Unfortunately, this situation is more common than ever in our current market conditions. If your creditor knows your business is closing, working with your creditors may spare you the expense of legal proceedings or bankruptcy. They can make justified reasons for either pursuing or not pursuing the matter further. If you are in a position to make a small settlement offer, this is the time to do so (i.e., some is better than none.) If you are not in that position, let them know that, too.

​Effectively communicating these financial situations is difficult enough when so much is on the line. Don't make it worse by failing to communicate and limiting options that may still be available!