To Pay or Not To Pay: Managing Debt and Creditors

Debt! Nkongole! ??????

This is a theme that has occupied me variously over the last few weeks. More than a few of the good folks that have sat across from me in our meeting room seeking advice have been plagued by the seemingly perennial problem of managing those that they owe money! ????

The creditors may range from suppliers of business goods or services (equipment, stationary, security and internet services etc) to more personal creditors like village banking admins chasing remittances or rabid school accountants (read 'bloodhounds') in hot pursuit of unsettled and overdue school fees! ??

What I am about to put out next may be painfully obvious to most; however, judging by the sheer number of folks darkening the doorways of lawyers’ chambers believing that they are possessed of a complex and convoluted legal problem when in fact, the problem is quite simply financial, I will say it anyway!?

So...apparently, the elixir for debt, the ‘magic bullet’ that makes all the debt collecting baddies go away… is to pay it off! ???

I hope that was not too much of a shocker! ???

The reality of course is that the occurrence of finances does not always coincide in the same time and space with the occurrence of financial obligations! The resulting disputes (or indeed apprehension of these disputes) are what drive folks to lawyer’s chambers in droves!??????

A few reflections on managing creditors in austere times such as we are in:

??Plug the leak: In other words, do your best to not continue accumulating the debts and plunging yourself into a downward spiral that rushes you to the bottom. Cut back on expenditure, be conservative and do more with less, or do less. Whatever you do, spend less on that which does not translate into increased revenues?? ;

??Pull back and plan: Take stock of all the debts, identify every creditor, classify them in terms of amounts owed, age of debt (how long have you owed?), risk associated with (continued) default (credit rating risk, legal action risk, etc); Plan the pay back based on an analysis of your classification and importantly, based on realistic projected income?? ;?

??Be proactive: don't wait for creditors to reach out to you, rather diligently reach out to them ahead of due dates and maintain contact, nay consistent contact thereafter???? ;

??Be perspicuous and plain: be transparent and open with your creditors as regards the state of your cashflows and solvency. This is necessary in order for creditors to meaningfully understand your situation and also to assess for themselves the level of risk associated with the debt. Keep in mind that a Court would be ordering you to demonstrate your means if after a law suit for recovery of the debt, you wanted time to pay. Pre-empt this by levelling with your creditors voluntarily?? ;

??Payment plan: Negotiate a realistic plan for settlement of your dues. The time frame for such plan must not stretch into an indeterminate (albeit certain) future (sort of like the 2nd Advent...??...I digress??) but rather must aim at liquidating the indebtedness within a reasonable time. Many Court decisions would confirm that a period in excess of 12 months for payment of a debt is not reasonable ???;

??Part pay: 'Waiting for a payment' (as will often be advanced as the cause of none payment) is a recipe for agitation of a creditor and the likely prelude to adverse action to include legal action. Rather than hope to pay when the whale ?? lands, better to make small but consistent payments as funds become available. I once had a client that accumulated?over ZMW1,000,000.00 (circa US$40k) in debt. After negotiating a monthly payment plan, they committed themselves to paying a minimum of ZMW2,500.00 per week every week with larger payments as and when they were able. The did so religiously with larger lumpsum payments as and when. The result, they liquidated the debt within six (6) months ??;?

??Pull in a credible third party. The key word here is 'credible'. Their role is to be a financial or moral guarantor for the comfort of your creditor.?? The third party introduces a dimension that may have not existed (or existed to a lesser degree) in the debtor/creditor relationship thus far i.e. security for the debt, whether moral or financial. It is a signal of seriousness and good faith to a creditor when a debtor takes this step. It is of course incumbent upon you as a debtor to ensure that the guarantor does not rue the day they ever met you, by honouring the obligation that they lend their credibility to;

??Finally, hopefully one would have learnt some valuable lessons from previously poorly navigated interactions with debt and creditors.?To quote a line often used by Jesus Christ after an encounter with an erstwhile sinner now forgiven, 'go and sin no more'!

Being deliberate about what goods and services one contracts for and ensuring that they are a real value add (beyond just making you ‘look good’); keeping an eye on one’s capacity to pay (or to continue paying) for these goods and services; being a decent communicator with creditors so that one is more proactive than reactive; having credibility in one's corner and finally, always bearing in mind that the antidote for debt is not a visit to the nearest self proclaimed prophet who mysteriously burns one’s debts away, but rather, to simply pay it off! ???

All the best! ?????

#debts

#CreditorManagement

About the author: Kaumbu Mwondela, LLB, LLM, AHCZ, FCIARB is a legal practitioner and international arbitrator. He is qualified at the Zambian bar and is a member of various professional bodies and organisations.

This article is for general information purposes and is not intended to be and should not be taken as legal advice.