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How to Face 63 Angry Creditors

Choose transparency over the courtroom.
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Owing money is the worst. Owing 63 vendors a combined total of $500,000 is an entrepreneur's worst nightmare.

This is the situation I found myself in when I

took over as president of a Philadelphia-based multimedia company.

After a month with the company, I discovered that all our vendor payments -- some of which amounted to over $50,000 -- were at least 90 days overdue.

Worse, many of the vendors had turned over our account to debt collection agencies that called daily demanding payment -- some with stern warnings and others with Mafioso-like zeal.

Take Abuse Over Litigation

We received 13 letters from lawyers and collection agencies threatening to take us to small-claims court.

This course of action would cost me astronomical legal fees if I appealed and would cost me my business if I didn't.

Determined to keep the courts out of it, I did the most uncomfortable thing possible: I called every creditor to confirm how much I owed them.

Ignored until this point, my creditors called me a crook and demanded payment.

I let them vent their frustrations and didn't offer excuses. It was humbling, but it kept me out of court.

Open Wide

To regain the fragile trust of our vendors, we did what every business balks at: We threw our doors wide open.

Creditors were invited to our offices, shown our business plan and presented with our financials. I worked with each of them to set up a payment plan.

The attorneys involved, who had never seen a debtor open up their financial records, advised their clients accept my deal. To further assuage wary vendors, I provided my cell-phone number for 24-hour queries.

At this point, be careful to never promise more than can be delivered, warns Robert Bovarnick, managing partner of Bovarnick and Associates, a Philadelphia-based law firm. If you break creditor trust again, chances are you'll be forced into bankruptcy.

Transparency Pays

Five of 13 creditors took me up on my offer and visited our offices with their attorneys. The other clients' attorneys asked for me to email my business plan, which detailed intentions to buy more products and services from their client, and a good-faith first-check payment.

The attorneys also required that we agree to the entry of a judgment, which would be filed only if I missed a payment and didn't call to discuss it.

No matter what you promise, creditors will assume payments won't be made, says Bovarnick. Therefore, be prepared to accept many legal protections from their side.

After one year we had paid back all 63 vendors. With a wide-open-book policy and a little integrity, we managed what the original owner thought impossible: We cleared up sizable debt without a lawsuit and our company still intact.

Lesson learned: If you ever find your company staring down the barrel of debt, start wearing your business on your sleeve.

Marc Kramer, a serial entrepreneur, is the author of five books and is an instructor at the University of Pennsylvania's Wharton's Global Consulting Practicum, where he serves as Country Manager for Chile.