I was a very lucky kid. I grew up with a father, who was an entrepreneur and generously shared his many lessons in business with me. He taught me to find a business model that allowed me to gift without expecting something in return; to do what’s right and what was promised, even when other people did not; and to always acknowledge debts.

One of my favorite stories comes from my father’s very first business. He was a broadcaster (and still is) in a small community. Because his business was in advertising, his clients ranged from big box retail chains to small mom-and-pop shops. One such client was a small grocer. Unfortunately, the grocer’s business began to decline and he couldn’t keep up with the payments for his advertising schedule.

Instead of allowing this to defeat him, the grocer utilized his products and knowledge to come up with a creative solution. Each week, he would show up at my father’s office and drop off a crate filled with apples, bread, peanut butter, beer, and other food stuff. In each crate, he would leave a note with a recipe that included all of the ingredients in the crate and an acknowledgement of the debt that was owed. The grocer’s note would read: “Please know that I have not forgotten the money I owe you. Please accept these goods as ‘interest’ on my debt.”

This story, my father would tell me, was a lesson in negotiation, entrepreneurship, and integrity. Although the grocer did not have the cash to pay his bills, he addressed it head-on and didn’t try to hide from it. This allowed the grocer and my father to maintain a great relationship during a difficult time. It also inspired my father to come up with an amazing advertising campaign for the grocer, which allowed the grocer to prosper and grow. The grocer recognized that he had the power to control the situation, even if he didn’t have the money.

How to Prioritize Your Debts

As a business owner, lack of liquidity is an unavoidable fact. Even when a business is prosperous, there will be times when paying a debt may be difficult or impossible. Because every business experiences this, every business owner should be prepared to address it. Below are some tips that can be used when this inevitable situation arises:

Communicate - If you have ever had anyone owe you money, you know how frustrating it is when that person avoids you. I have found that most people are reasonable and addressing the issue early helps to maintain a respectful relationship. By addressing the issue early with your creditor, you also allow yourself enough time to come up with creative solutions to the problem.
Be The First - The creditor should never have to track you down to get answers. For most diligent business owners, the inability to pay a bill/debt becomes apparent before it is actually due. That is when you should reach out to the creditor and begin working on a solution. By addressing the issue first, you maintain control of the situation and reduce the amount of time and energy that the creditor has to put into getting its money back. By being first, you increase the odds of the creditor working with you.
Be Creative - As business owners, we leverage creativity every single day. However, I have always been surprised by how that creativity ends when problem-solving debt solutions. Just like the grocer, most businesses have products or services that can be leveraged to alleviate the inconvenience for the creditor and show “good faith.” If the creditor cannot use your goods or services, see if the creditor’s clients can use them. Discuss your creditor’s needs and see how you can help to address those needs. Even if your creditor does not want your goods/services, it will appreciate your efforts and hard work.
Stay Positive - I have witnessed countless business owners’ attitude and perspective destroyed over an outstanding debt. It consumes them and then begins to affect their problem-solving and sticktoitiveness that is so important in entrepreneurship. By acknowledging that every business will have to face an unpaid debt and by addressing it head-on, a business owner can maintain a positive attitude and perspective. These issues are much like any other issue - they can be overcome through hard work, integrity, and creativity.

So, be like the grocer and think outside the "crate" when your business is faced with a debt that you can't pay immediately.

Megan Porth is the owner and managing attorney at Your Contract Shop. Megan was born and raised around entrepreneurs and business people. From a very young age, she was attending networking events, strategic planning meetings, and marketing seminars. Her passion for helping businesses grow inspired her to go to law school, where she graduated with honors. She currently owns her own business consulting firm in addition to being a practicing business law attorney.

Megan Porth is only licensed in Arizona. Any other work done through Your Contract Shop outside of Arizona will be done only with attorneys who are licensed or authorized to practice in that state.

*The materials provided in this article are for informational purposes only and not for the purpose of providing legal advice. Use of and access to this article does not create an attorney-client relationship between Your Contract Shop and the user. You should contact your attorney to obtain advice with respect to any particular issue or problem