While listening to a client talk about some of his debt it occurred to me how much of his debt was unfriendly debt.
By unfriendly I mean from institutions with no interest in his success, his professional accomplishments, or anything other than finding ways to tack on additional charges to increase their short term profits.
Examples of this person's unfriendly debt:
A credit card company that started sending bills out only a few days before the payment was due; generating a late fee.
Another credit card company increasing the interest rate to above unreasonable in one month, without notice.
A leasing company tacking on a monthly insurance fee because the certificate of insurance on file had expired: without notifying him of the expired certificate. (I had two of these this week! I don't think I have ever had one before.)
A building owner adding a service charge to the cost of a normal business repair; and then subtracting the service fee from the rent payment so the rent payment appeared to be short, and then tacking on a late fee for underpaying the rent.
A vendor refusing to ship until money was wired to the account; when the account actually had a net credit due to a return.
An offer from a potential vendor to become his supplier, after he gave them a first right of refusal on his business.
Friends would not do these things to friends.
By friendly debt I mean debt where the lender has, or acts as if they have, an interest in the success of the debtor.
Examples of friendly debt: (Unfortunately not from this client.)
A friend, or relative, loaning money to support the business; payment terms negotiable.
A vendor extending the payment period to help the business sell more of the vendor's products.
A leasing company offering lower payments, yes it extended the term, for a few months to meet a cash shortage.
A local bank offering to change a secured fixed payment note to an unsecured line of credit to meet cash needs.
An employee offering to take delayed paychecks so their pay matches cash flow.
A building owner installing a new sign midway through the lease, improving the visibility of the business, without asking for additional payment.
A banker letting a customer know additional funds are available without additional paperwork.
Friends would do these things for friends.
My realization:
Unfriendly debt was easy for him to get because it was being sold to him as cheap and easy; and he didn't realize it was being sold like anything else he was buying. For example: often a lease is an assumptive sale following the decision to purchase equipment. Yet the lease sale is more valuable than the equipment. I told him about when I went to lease a car. The first thing I did was get a copy of the lease each company was offering and read it. One was far and away better than the others; so I leased a car from that company. The sales people told me no one ever does that as if I was a nut. OK, but a couple of hours reading saved me many thousands of dollars.
Friendly debt he would need to seek out on his own and it had never occurred to him to do so.
I do hope this helps you,
Rick
