Negotiating New Payment Terms With Creditors During Covid-19

By Keith Tully

The coronavirus pandemic continues to disrupt trading across the world, pushing businesses of all sizes, from independent boutiques to multinational corporations to close shop to comply with social distancing measures. As a result of the financial challenges posed by the Covid-19 pandemic, businesses have been forced to terminate employment contracts, grant temporary leave of absence to employees due to operational disruption and implement substantial cost-cutting exercises.  

Company cash flow is at the core of business interests as due to the Coronavirus lockdown, pressure mounts on businesses to stay afloat. In many cases, surviving off cash reserves is the answer until consumer demand resumes, however, many businesses are a ticking time bomb which is where negotiating payment terms could be the answer to surviving the Covid-19 lockdown.

 

Restructure payments

When negotiating with creditors, propose restructured payments to allow for some breathing space if you require this to sustain the financial health of the business. Payments can be restructured to allow for an extension from 30 days to 90 days. This gives the business longer to recover funds for creditors and lockdown measures may be partially lifted by the latter end of the payment term, allowing for a fraction of consumers to return.

In addition to extending the timeframe, restructure payments into affordable instalments as this delivers a steady stream of capital to the creditor, partially releasing you of the financial burden. Making payments easier to meet during this challenging trading period due to Covid-19 is in the best interest of both parties. By making the target more attainable, the creditor will receive what they are due faster, even if this is within a longer timeframe, rather than this rotting into bad debt.

 

Deposit on purchase

If you’re able to attain a longer payment timeframe by making an upfront deposit, consider making this payment to ease the long term financial pressure off your business. Making a deposit shows financial commitment and intention to fulfil future payments. If full payment cannot be paid, the creditor can halt production and compensate their financial efforts through the initial deposit payment.

The danger of failing to negotiate payment terms when you’re aware that you’re unable to meet financial commitments could risk the financial health of your business. As a multitude of industries hit pause due to the coronavirus pandemic, your business may be bearing the pressure, taking a hit to company cash flow as a result. If you’re running out of capital, struggling to maintain the business and pay staff wages, you need to take every step possible to minimise outgoings and negotiate flexible payment terms. By spreading outgoings, you have a better chance to meet your bills and raise money for creditors.

The Covid-19 pandemic has resulted in unprecedented trading conditions, so the financial effect is likely to have impacted both parties. The key is to act in the first instance and use the cash flow and balance sheet test to determine the extremity of your financial condition or seek business restructuring advice.

About the Author

Keith Tully is a partner at Real Business Rescue, a renowned provider of business recovery and turnaround solutions for financially distressed businesses. Keith regularly provides expert commentary to international and UK based publications and is heavily involved in assisting SMEs during the current Covid-19 pandemic.

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