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    WEB EXCLUSIVE GUEST COLUMN: Debt Settlement

    If year-end sales fall short, debt settlement can help c-stores avoid bankruptcy.

    By Steve Newman

    The 2006 holiday season is behind us, and year-end sales results tell the story: While many convenience-store owners and operators (especially independents) often rely on strong year-end sales numbers to "make their year," unfortunately not everyone got them in 2006. As a result, it can be difficult to pay vendors and other bills at the start of the year.

    If you're in this boat, what are your options? You probably have already cut costs to the bone. If you sell off key assets, customer and employee satisfaction are likely to falter. Bankruptcy or a store closing might seem like your only remaining routes. But there is an alternative to these and other drastic steps: debt settlement.

    While it's not widely known among independent convenience stores, your creditors are often willing to settle past-due debts for less than the full balance owed. Why is that?

    More than ever, manufacturers and other suppliers realize that their fortunes are tied to those of the retailers who sell or use their products. Most of them are willing to accept a portion of what they're owed in order to help a good retail client get back to financial health -- so that the retailer can continue buying from them.

    How much can debt settlement reduce a company's payables? If you hire an experienced, professional negotiator who deals with each creditor individually, some of your debts could shrink by as much as 70 percent (that is, you would pay only 30 percent of the outstanding balance, without borrowing money). Look for a service-oriented pro who will also handle all calls and letters from your creditors -- allowing you to focus on rebuilding sales and curbing expenses.

    A key question that any retailer should ask a debt-settlement firm is how it earns and collects its fees. Ideally, the fees should be based solely on the dollar amount of debt savings achieved for the client. This makes debt settlement a virtually "risk-free" solution for the client: no fee to pay until all negotiations are completed.

    That's not to say that debt settlement is perfect, or appropriate for all companies' financial situations. It's not for a financially stable business that simply wants to reduce its monthly payments. Instead, it's primarily for companies already behind on their payments and looking to make a fresh start. Because they are "in arrears" on their debts, these firms' Dun & Bradstreet (or similar) ratings usually have already dropped. Debt settlement activity may initially lower these ratings further, but in most cases it also proves to be the first step in rebuilding the client's rating -- precisely because payments are now being made where they weren't before.

    When a convenience store starts missing payments, its vendors often require that the store switch to C.O.D. (cash on delivery) terms. This can be difficult for the store because it is a cash business with relatively low thin profit margins. Debt settlement can help by reducing the store's total debt load, freeing up the cash needed to make the C.O.D. arrangement work.

    As smaller vendors are more likely to resist the idea of settling a debt at a discount, it's usually best to work out settlements with larger vendors first. The savings achieved sometimes make it unnecessary to settle the small-vendor debts. Or, the larger settlements can be used as examples to persuade smaller vendors to join in the settlement program.

    Coming just after the holiday season, the first quarter of each year is when many "on-the-bubble" retailers must decide whether to restructure, file bankruptcy, or shut down entirely. Before committing to any of these options -- which are usually expensive, stressful, and quite public -- it just makes sense to look into debt settlement.

    Steve Newman is Principal of Performance Source Inc (PSI). Newman can be reached at (800) 883-5080, or [email protected]. The company's web site is www.performancesourceinc.com.

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