During tough times in any business, it becomes difficult if not impossible to pay all your bills on time, and this can become a source of sleepless nights and worry for an entrepreneur. One summer at Atari, we had an extremely dry sales season and got behind on our payments. Some of our suppliers agreed to work with us. Others sued, and we would up with more than a dozen judgments against us on behalf of them. It was an unhappy period.
If you find yourself facing this situation today, it is important to know that you have many more friends than you may believe. Your key suppliers--the good ones to whom you owe probably the most money--generally want you to survive and to prosper. They really want to supply your company for many years to come. If you go out of business next month, they not only lose the revenue you owe them, they also lose you as a recurring customer. So you have more leverage with them than you may think.
The secret to surviving this situation is to communicate. It can be exhausting, but open a dialogue with your creditors and make sure that you are honest. Present them with a plan, and ask for their patience.
Here's what you want to find out from them:
1. Think about which creditors you absolutely need in order to stay in business, and vice versa. Make sure that you have a way to secure future shipments or services from them in order to keep your business running.
2. Determine which of the rest of your creditors are rational and want to work with you, which ones are also in financial difficulty, and which creditors are jerks who will tolerate no give-and-take.
3. Work out a payment schedule for each creditor and try to be as faithful to that schedule as possible.
4. In general, in these difficult times, don't sweat any payment turned over to a collections agency and don't allow threats of legal action to worry you. It can take years for a creditor to get a judgment and then to collect from you. They know that and now so do you.
5. The most important thing is to keep your business operating and to reduce costs. Business cycles come to an end and make sure that you are there to see that new dawn.
When Atari ran into trouble, none of the competitors who sued us were able to collect a dime until we were ready to pay. That moment didn't come until about 6 months later and, by that time, the market had come back and our cash position had improved. The creditors that helped us through the tough period won our loyalty going forward, while we permanently black-balled all the firms that sued us. And they were very sorry. We survived and made our helpers millions as we grew and expanded.
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