by Stefan Töpfer

‘This question is hard to answer, because there are no simple answers here and the outcome of this situation could easily be fatal to the business and if you are personally guaranteeing this money – and you probably are – this could potentially be very serious for your personal life too.

The things that you need to do, in my opinion are:

  • Find out why? If the reason given are not satisfactory, you will need to get legal advice.
  • Try and extent the deadline? If that is possible reduce the overdraft as soon as you can, or negotiate a stepped reduction of the O/D limit, ie. by month or week.
  • Try and change bank, ASAP.

People often believe it is somehow always their fault, if the bank changes their attitude towards them, that is not always the case. Banks will always try and make you believe it is, but in reality they my have new internal guidelines for handing out money – banks can get into “cash-flow” problems too.  So – don’t automatically assume it is always your fault.

Banks may have the right to recall a loan or overdraft, but I’m not sure if they have the right to damage your business by doing so – especially if the reason for the recall is not your doing. So if it comes to the crunch, get legal advice. This is one of the reasons why I hate these, IMO, often legal but still unreasonable arrangements between banks and clients.

Many years ago someone made the the loan, O/D – umbrella analogy and it goes like this:

When the sun is shining your bank gives you an umbrella;
when it is raining, they need the umbrella themselves.

It is best if you do everything possible to not need banks in the first place, by bootstrapping, outsourcing, planning your business and keeping your fixed costs as low as possible.

Remember sometimes, attack is the best defense even with banks, they may need their money, but they do not need bad publicity either.

Stefan Topfer

COMMENTS

No cash flow – no business to run.  This is a fact!

Many businesses in tough times rely on bank overdraft for their cash flow.  There is absolutely nothing wrong with this, providing it is a temporary measure.  Ultimately, as time progresses and your business liabilities increase, this scenario could be fatal for your business.

Many businesses are currently experiencing exactly this scenario.  Many other businesses have either reached their bank overdraft limit, or had their bank stop the overdraft completely.

What can you do if this is happening to you?

First, have in mind that what you focus on EXPANDS!

You can try doing the following:

  • Put most of your energy in increasing your sales – More productivity equals more cash in the bank.  More profit decreases level of financial stress.  More profit increases your business self esteem; more business self esteem gives you more muscle and stamina to deal with the crisis.
  • Put more effort in getting your bad debt collected – It is instant cash! Sometimes when chased for money, attack and chasing others is the best defense!  It is amazing what results you can achieve if you chase your debtors for payment persistently for few days.  This is money already earned; all you need is finding an easy way to get it paid to you.  Be persistent!  Call, e-mail, call, and send letters, call.  Even if you get a percentage of what you attempt to collect, with the volume of clients contacted over few days, you should have a fair share of cash accumulated in a short time.
  • Be responsible debtor – Do not wait for your creditors to chase you for money.  Be first to contact your creditors and be as honest with them as possible explaining your financial position.  You will be pleasantly surprised with level of empathy and assistance available when you ask for it. You might be able to arrange delayed payments, part payment options or even small reductions with your long time creditors.  Most of them have gone through a cash flow crisis at some point themselves and they do understand.  When you call first – you prove that you take your debt seriously.  When you say you want to do the right thing and pay, but you need some assistance – they respect you even more.  They know you are professional by honoring your payment obligations; majority of creditors would assist and help you – so they can eventually get paid.  Do not ever underestimate the power of this honest approach for assistance and help.
  • Pay your creditors regularly – Regularity is a key when creditors look at your payment history!  Even if you pay part payments, they can see that you are trying your best.  They will not seat on your back with demands – they can see that you are trying.  Make sure you respond promptly to any calls from their accounts for payment request.  Make sure you pay all of them at least a small monthly installment.  Regular small payment is much better than no payment.
  • Look into Pro-fee funding – Many professional service companies might be able to help you organize funding for their fees.  There are many financial institutions that specialize in finding certain industries.   These special loans for professional fees are called pro- fee funding.  For example, many accountancy or law firms would have these options.  Do not be ashamed to ask.  These loans are the same as other bank loans; they are processed from specialized departments.  The interest rate charged is usually quite reasonable.  You might be able to get a 12 month loan; with an interest charged that is still fair bit below the current personal loan interest rate.  Once they approve the loan, these institutions pay the full amount requested to your creditor.  You are than liable to pay the financial institution the 12 monthly instalments.

As you can see, there are always few extra options available in every bad scenario.

Lastly, remember that  WHAT YOU FOCUS ON – EXPANDS!

Easy Debt Collecting