Business Debt Negotiations

Business debt negotiation involves paying what a company can afford in order to settle loans and bills in full and doing so usually through a third party, such as a financial negotiator. Also referred to as arbitration or settlement, business debt negotiations are considered just one step away from bankruptcy. While negotiating may have a slightly better long-term outcome than filing for bankruptcy has, it should be considered as a last resort.

Negotiating differs from consolidating. Business debt negotiations usually are offered to companies that have failed to complete business debt consolidation programs, that cannot make the payments of a consolidation program or have outstanding debts on which they haven't paid in three or more months. Instead of eventually paying in full the debt owed, business debt negotiation professionals settle for less than the amount accrued, usually about 50% of the amount owed to creditors.

Settling balances serves as the point of contact for creditors. Therefore, the company is removed from the loop of negotiating, allowing the financial negotiator to deal with the creditors directly. The goal is to negotiate for reductions in the total amount of money owed, in order to save the company as much money as possible, as quickly as possible. Depending on the situation of the company, business debt negotiations can call for a reduced amount, settle for payments on a reduced amount or extend a negotiated amount until the company has sufficient funds available. Regardless of the avenue chosen in the business debt negotiation, the company's credit reports will read "settled in full" instead of "paid in full," implying that the company was unable to pay the full balance, but negotiated a smaller payment.

While negotiating is a better option than bankruptcy, there are still other viable options before a company chooses to proceed with this choice. First, company owners should consider credit counseling in which a counselor will attempt to contact creditors in order to reduce the company's payments on its debts. Second, they need to consider contacting creditors themselves to negotiate payment arrangements or to ask for lower interest rates. Finally, instead of business debt negotiations, owners need to consider consolidation, in which the unsecured debts are lumped together over a long period of time, often at a lower interest rate, thereby giving the company lower monthly payments.

This process should not be entered into lightly. Therefore, owners need to seek to pay all loans and bills in full if possible. If they cannot, owners need to proceed with caution and wisdom when entering into business debt negotiation while continuing pay off due balances to the best of their ability. "The righteous also shall hold on his way, and he that hath clean hands shall be stronger and stronger" (Job 17:9).

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