Calculating Appropriate Settlement Offers for Business Debts[yoast-breadcrumb]
Calculating Appropriate Settlement Offers for Business Debts
Take a Close Look at Your Business Finances
Before even thinking about making settlement offers, it’s crucial to thoroughly analyze your business’s financial situation. This involves carefully reviewing income statements, balance sheets, cash flow statements, and taking stock of all outstanding debts. You need to examine both your current finances as well as projected numbers for the next 6-12 months. Conducting this in-depth financial analysis will help determine realistic lump sum settlement amounts your business can afford to pay right now based on available cash reserves, monthly cash flow, accounts payable/receivable, upcoming expenses and obligations, debts owed, payment terms, collateral used to secure loans, etc.
Developing a crystal clear picture of your business’s debts, assets, income streams, and financial obligations is key to making settlement offers grounded in financial realities rather than wishful thinking. As explained in this Investopedia article, you need a significant amount of cash to settle your debt, so have an accurate handle on what’s available.
Prioritize Your Debts Strategically
When it comes to debt settlements, not all debts are created equal. You need to thoughtfully prioritize which ones are most critical to tackle first. Factors to consider when deciding which debts to focus on settling immediately include those secured by essential business assets you can’t afford to lose, debts with upcoming maturity dates, high interest debts costing the most in fees, overdue tax debts that could potentially lead to liens or levies. Settling these types of priority debts can provide quick financial relief and protect your company’s crucial assets. Based on cash flow realities, you may decide to only settle with a select group of high priority creditors right now and deal with lower priority debts later on.
Research Individual Creditor Policies
Before presenting any settlement offers, it’s wise to thoroughly research the policies and practices of each creditor you owe money to. Many creditors publish general debt settlement guidelines on their websites that you can review. You’ll get more detailed intel by calling up customer service departments and asking questions. Key things to find out are the minimum settlement offers they’ll accept, whether they negotiate directly or use collection agencies, payment plan options, and potential tax implications of settled debt.
Arming yourself with this type of creditor-specific settlement information will allow you to craft appropriate offers tailored to each creditor that meet their criteria. This FTC guide also explains important factors to consider when structuring debt relief offers. It can also help identify any creditors completely unwilling to negotiate settlements under any circumstances.
Calculate a Reasonable Settlement Range
After getting a handle on your finances and creditor policies, you can start calculating a reasonable settlement range to offer creditors. As explained in this Investopedia article, many creditors accept offers between 40-60% of the total amount owed. However, your company’s specific financial situation and the individual creditor’s settlement criteria impact appropriate offers.
Factors to consider when formulating fair settlement ranges include total amount owed to each creditor, available lump sum payment, affordable monthly payments if proposing a settlement payment plan, minimums/ranges the creditor accepts based on research, original repayment terms and whether the debt is past due, importance of maintaining the creditor relationship long-term. Crunch all these numbers to land on settlement ranges you feel are fair, potentially starting on the lower end so you have room to negotiate up if needed during discussions.
Make Initial Lowball Settlement Offers
Once you’ve determined reasonable settlement ranges, it’s time to make initial lowball offers to kickstart negotiations. Contact creditors by phone, email, or letter explaining your business is experiencing financial hardship and requesting to settle for a specific discounted dollar amount. For example, if you owe a creditor $20,000, open with an offer of 30% or $6,000.
Refer back to your financial analysis to justify why this lump sum or payment plan amount represents the maximum you can realistically afford. Reiterate how much you value the business relationship and want to resolve the debt. As explained in this CFPB article, the creditor will likely counter with a higher amount, allowing you to negotiate from there.
Negotiate Back and Forth to Reach Middle Ground
Settling business debts involves an iterative back and forth negotiation process. If your initial lowball offer is rejected, don’t fret. Listen carefully to the creditor’s counteroffer and rationale, then take time to carefully consider your next move rather than immediately matching their number.
As you negotiate, refer back to your original financial assessment and settlement range calculations to ground discussions in what your business can realistically afford. If a counteroffer still stretches beyond those limits, hold firm in refusing to exceed your means. Consider making smaller incremental offer increases rather than huge jumps. Explore extending the repayment timeline through payment plans with affordable monthly settlement amounts. With persistence and compromise from both sides, you can negotiate win-win settlements.
Get Final Settlement Terms in Writing
Before paying a dime, get any verbal settlement agreement detailed clearly in writing. As explained in this CFPB article, the agreement should specify original debt amount, settled payment amount, payment due dates, account closure terms. Carefully review before signing to ensure it reflects everything discussed. This written agreement legally protects your business interests and provides proof of the settled amount.
Make Payments and Follow Up
After signing the deal, submit your lump sum payment or begin installment payments by the agreed deadline. Follow up to confirm creditors received payment and have marked your account as settled. Get written confirmation the debt is satisfied for the settlement amount. Periodically verify the account status remains accurately updated.