What to Do When You Are Unable to Make Payments

By: Angie Jenson  
June 18th, 2019

Communicating with Creditors Is Critical When Facing Financial Hardship

As a business owner you often enjoy a great deal of success.  However, there are times when challenges arise that can cause a tremendous amount of strain on your business: for instance, an unforeseen breakdown of financed equipment or a cash flow crunch caused by a slow-paying customer.  As a result, you may find yourself unable to fulfill your obligations and face a default under your equipment financing contract, siphoning time and energy away from running your business.  Although the underlying causes may be out of your control, how you take action is the key to successfully managing these unfortunate events.

If you are facing financial hardship and struggling to make payments on time, the three steps described below will help you successfully navigate through this challenging period.

Proactively Contact Your Equipment Finance Company

Communication with the creditor that has financed your equipment is crucial.  A creditor is far more willing to work with someone who takes a proactive approach when a problem arises.  For instance, there may be times when you do not have sufficient funds in your account for your creditor to pull a scheduled periodic payment (ACH).  In this case, take the initiative to make the creditor aware of the situation prior to the payment being returned.  This provides the opportunity to explore alternative temporary payment arrangements with your creditor.

Be Accessible for Communication from Your Creditor

Answering the phone, an email, or text from your creditor in a timely manner is very important when your payment is delinquent.  Your initial instinct may be to avoid communication with the creditor due to embarrassment or lack of funds to pay the amounts owed.  Whatever the reason, resist the urge to ignore or shut down communication.

Lack of timely, upfront communication will only lead to bigger problems, up to the repossession of the equipment and/or the commencement of legal proceedings.  If a creditor has no mechanism to understand or discuss the reason for you not making payments, it will have no option but to enforce its rights under the financing contract.  A better approach is to communicate openly with the creditor and work diligently to resolve the delinquency.  Keeping lines of communication open and following through on mutually agreed-upon payment arrangements is the only way to restore your contract to good standing.

Know when to Surrender Your Equipment to Avoid Additional Debt

In the unfortunate event that you are no longer able to service the debt obligations owed on the contract, contacting your creditor immediately to voluntarily surrender the equipment represents the first critical step to manage your potential liabilities.  If the equipment is in a rented location with a potential eviction risk, contact your creditor in advance so that arrangements can be made to pick up the equipment.  If a piece of rolling stock has been impounded or towed to a repair shop, contact the creditor immediately to avoid unnecessary storage fees, which will remain your responsibility.

Lack of communication and failure to turn over possession of the equipment typically lead to a much larger debt obligation, as you will generally be responsible for any expenses incurred by the creditor in recovering the equipment as well as the loss of collateral value caused by your actions.  In addition, keep the equipment insured until the creditor has secured it.  If the equipment was involved in an insurance claim, let the creditor know immediately and provide all available insurance claim information.  Discontinue use of the equipment and make sure it is in a safe location; do not cannibalize it.

Creditors want all equipment finance transactions to be successful for both parties.  When things go wrong your creditor will want to work with you to resolve the situation.  By providing open, timely communication and agreeing to a realistic plan to catch up on late payments, you can minimize your hardship when things do not go as planned.

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