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The
2006 holiday season is behind us, and year-end sales results
tell the story: While many retailers (especially
independents) often rely on strong year-end sales numbers to
“make their year,” not everyone got them in 2006.
As a result, it can be difficult to pay vendors and
other bills at the start of the year.
If
you’re in this boat, what are your options?
You probably have already cut costs to the bone. If
you sell off key assets, customer and employee satisfaction
are likely to falter. Bankruptcy
or a store closing may seem like your only remaining routes.
But
there is an alternative to these and other drastic steps:
debt settlement.
While
it’s not widely known among the state’s independent
retailers, your creditors are often willing to settle
past-due debts for less than the full balance owed.
Why is that?
More
than ever, manufacturers and other suppliers realize that
their fortunes are tied to those of the retailers who sell
or use their products. Most
of them are willing to accept a portion of what they’re
owed in order to help a good retail client get back to
financial health—so that the retailer can continue buying
from them.
How
much can debt settlement reduce a company’s payables?
If you hire an experienced, professional negotiator
who deals with each creditor individually, some of your
debts could shrink by as much as 70% (that is, you would pay
only 30% of the outstanding balance, without borrowing
money). Look
for a negotiator who will handle all calls and
letters from creditors—allowing you to focus on rebuilding
sales and curbing expenses.
A
key question that any retailer should ask a debt-settlement
firm is how it earns and collects its fees.
Ideally, the fees should be based solely on the
dollar amount of debt savings achieved for the client.
This makes debt settlement a virtually
“risk-free” solution for the client: no fee to pay until
all negotiations are completed.
That’s
not to say that debt settlement is perfect, or appropriate
for all companies’ financial situations.
It’s not for a financially stable business that
simply wants to reduce its monthly payments.
Instead, it’s primarily for companies already
behind on their payments and looking to make a fresh start.
Because they are “in arrears” on their debts,
these firms’ Dun & Bradstreet (or similar) ratings
usually have already dropped.
Debt settlement activity may initially lower these
ratings further, but in most cases it also proves to be the
first step in rebuilding the client’s rating—precisely
because payments are now being made where they weren’t
before.
When
a retailer starts missing payments, its vendors may require
that the store switch to C.O.D. terms.
This can be difficult for the company because in most
cases it is largely a cash business with relatively thin
profit margins. Debt
settlement can help by reducing the store’s total debt
load, freeing up the cash needed to make the C.O.D.
arrangement work.
As
smaller vendors are more likely to resist the idea of
settling a debt at a discount, it’s usually best to work
out settlements with larger vendors first.
The savings achieved sometimes make it unnecessary to
settle the small-vendor debts.
Or, the larger settlements can be used as examples to
persuade smaller vendors to join in the settlement program.
Coming
just after the holiday season, the first quarter of each
year is when many “on-the-bubble”
Michigan
retailers must decide whether to restructure, file
bankruptcy, or shut down entirely.
Before committing to any of these options—which are
usually expensive, stressful, and quite public—it just
makes sense to look into debt settlement.
Steve
Newman is Principal of Performance Source Inc (PSI).
Since 1963, PSI has helped thousands of clients save
millions of dollars and satisfy their creditors without
borrowing money. Under
the company’s risk-free process, clients decide which
payables they want PSI to negotiate, they approve (or
decline) all proposed settlements in advance, and owe PSI
nothing if a settlement is not reached or not accepted.
And because PSI also handles all contact with
clients’ creditors, clients are able to focus on growing
their businesses. Steve
can be reached at 800/883-5080, or snewman@psi1963.com.
The company’s web site is www.performancesourceinc.com.
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