Tell Your Creditors You Cannot Pay Them

We all know when we are spinning a yarn, especially when we tell someone we are going to pay them, fully knowing we do not have the cash. Even if we did, it would be better used elsewhere so this bill is very unlikely to be paid. We respond this way out of weakness, not wanting to cause a confrontation and not wanting to breach our word and anger our creditor, thus we tell him what he wants to hear, that the check is in the mail, on the way or will be sent. It’s a natural reaction but the wrong response. Why do we do this? The end of the week comes and goes and all we have done is postpone the thrashing for a few days, destroy more credibility and break down any opportunity for honest communications and mutual trust and a workout in the future. That is a no-win proposition, yet we do it all the time.

If you tell the truth and explain to your creditors exactly what the situation is and what their expectations should be, you will have far more cooperation, and it can last for months, maybe even years.

Creditors may not like it but they know you’re working your hardest and communicating honestly and openly. That is a respectable position. They will want to help you and will extend longer terms whether they know this in advance or not. What choice do they have other than foreclosure which costs money, takes time, and is unlikely to yield any positive conclusion other than putting you out of business and eliminating any future opportunity for your creditor to be paid. If you act with integrity, even if the message is a bad one, there remains an opportunity to do business. Lie, and after the second or third time you will have lost their cooperation completely. The trust is broken beyond repair.

Keep on telling your story, your vision, and give candid truthful responses to the collectors of overdue payables. As long as it’s true, most will cooperate as much as they possibly can. Tell them you will pay them in full as soon as the cash is available, just not now. As long as you believe this, they will believe it also and they will give you all the time you need. That works. Eventually, if you still have not turned your business around, they will be ready to accept the loss from whatever workout scenario we propose. One thing we can accomplish is not destroying the goodwill that comes from telling the truth and not lying to our creditors. They will appreciate this and it will pay huge dividends down the road when it becomes clear you need a workout plan.

Yes, it’s tough. Yes, you are disappointing them. Yes ,you feel like a chump, but the only way to deal with this is through candid honesty and the brutal truth along with a large dose of your vision and dream and your belief that your plans will save the day and bridge the gap, bringing you all the cash you will need as success will soon be knocking on your door. Everyone can identify with this scenario and will want to cooperate. That’s the plan. Share the plan and gain their cooperation. If there is no plan or no opportunity to resolve this through payment, you need a serious debt reduction workout.