The Care and Feeding of Creditors

Arnold Goldstein’s books on small business are pragmatic and tactical. I was able to locate a copy of his out-of-print 1983 book How to Save Your Business. He’s got some very good tips which I will be passing along here.

Here are excerpts from The Care and Feeding of Creditors:

Creditors head my list of culprits who can drain cash more quickly than you can take it in. It’s an interesting paradox. When creditors know you’re in trouble, they push as hard as possible for as much as possible before your business collapses….

Survival means saying “no” to creditors pushing for payment on past debts….A “no-nonsense” policy [i. e. desperation plan] can keep money in your till:

1. Make absolutely no payment on past bills owed trade creditors.
2. If a supplier refuses to ship C.O.D. without payment on a prior debt, switch suppliers. Few suppliers enjoy a monopoly….Once you call their bluff, most suppliers will agree to ship C.O.D. without payment on a past debt.
3. Don’t allow creditors to recoup payment by withholding trade or volume discounts, promotional allowances or other purchasing incentives. You want the same price and allowances as any other cash customer.
4. If you return goods for credit, insist on a credit agains future purchases. Don’t let anyone apply the credit to the prior balance.
5. Refuse to provide collateral, a mortgage on business assets, or a personal guarantee, unless you are receiving a big benefit, such as additional credit, in return.
6. Forget excuses. Your check is not in the mail. Your accountant does not have the checkbook….Be honest. Say you need time to decide what to do with your creditors’ old bills. You know it, and your creditors know it, so why not be honest and just say it? Creditors will respect you and won’t badger you for payment every day until you run out of excuses.
7. Never acknowledge your debt or the fact you’re in trouble in writing. Do it verbally but avoid specifics. A written admission of insolvency can give your creditors ammunition to throw you into bankrupcy.
8. Don’t be intimidated. That’s the key to success. Creditors can be intimidating. They’ll threaten…. In reality, general creditors can do very little harm. They’re toothless dogs who love to bark.
9. Refer all legal correspondence to your attorney….
10. Post these rules by your phone….You face hostile creditors every day and it can be tempting to write them a check to get them off your back. Yet survivors know how to say “no.”

Obviously, Goldstein is describing a last-ditch defense when you have to sacrifice supplier relations in order to get through. When things aren’t yet at that stage, paying suppliers quickly in a recession (and other times) can garner enormous good will. When I have a tight month, I sometimes send 10% as a message of intent to pay.

Topics: Cash positive, Credit