Cash today is better than the promise of more cash tomorrow. This was my motto as a bankruptcy litigator in Chicago, Illinois representing corporate debtors. I would get outstanding deals for my clients with that one line. In an economic downturn everyone wants the real deal – cash today. Tomorrow is a long way off and you might not get there.

Companies rarely look at their contractual obligations early enough in an economic downturn, often missing opportunities to re-negotiate terms. It is as if the fear of tipping off the customer, vendor or supplier that there might be a cash flow problem outweighs the bottom line necessity to re-structure an agreement.

Re-negotiating the terms of some of your contracts can be risky. I urge you to carefully consider these three pieces of advice. Following them will give you a plan of action, easing the process for you.

Start now. Don’t wait until you are in crisis.

Assign someone to review all key contracts. Look for terms that could be re-negotiated like, charge backs, payment terms, interest or shipping and delivery provisions.

Request small, but meaningful changes.

Rather than asking for the one monumental change ask for smaller, more incremental changes. Payment cycles are a great example. Companies often agree to payment terms without calculating the impact on cash flow.

Create a proposal.

Don’t wing it. Because you are changing terms that impact your bottom line more than they impact the other company’s bottom line, you have more at stake if they say no. Thoughtfully create and pitch the proposal.

Companies that engage in an open dialogue with their customers, vendors and suppliers often gain two intangible benefits; a deeper sense of trust and help when you really need it. Contrary to your belief that the other company will not work with you or trust you, companies that are treated with respect treat others with respect.

Don’t wait for a crises to contact valuable vendors, suppliers, and customers. The fact is, once a company is in a Chapter 11 re-organization, all the debtors contracts and obligations are re-negotiated. Rather than wait, enjoy the benefits of re-negotiating your contracts today. Start now by looking for small but significant changes.

This entry was posted on Friday, May 2nd, 2008 at 10:11 pm and is filed under General, Creating Value. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.