If you are stumped on a question, remember the basic quiz assumptions.
- You want to stay in business but your company’s cash flow is extremely tight and you’re seriously past due with your creditors.
- Base your answers to these questions only on the situation described without making any other assumptions.
Question 1 – Factors to keep in mind:
- Having a reserve and preserving cash flow.
- When cash flow is tight, a dollar in hand is worth more than a dollar saved.
- Do you feel better when you have more money in your bank account or less?
The right answer is: C. Don’t pay any of them.
- No immediate threat.
- Just because you have the money, doesn’t mean you should part with it.
- The other choices leave you with no money.
Question 2 – Factors to keep in mind:
- What threat do these creditors pose to your business?
- Just because a settlement offers favorable terms, doesn’t mean it makes good financial sense.
The right answer is C Hold on to your $500 and don’t pay either of them.
You will have $500 more which can be used:
- to entice a settlement with the $10,000 creditor.
- to pay an attorney to answer the potential lawsuit.
- for any other emergency that inevitably comes up.
The settlement offer from the $1,000 creditor may be retracted but:
- you may be able to settle for less money.
- you may be able to settle for smaller monthly payments.
- they might even write-off the debt entirely.
- though it is unlikely, they may sue you.
Question 3 – Factors to keep in mind:
- The faster you settle, the faster you have to pay.
- The faster you have to pay, the more money you need.
- How’s your cash flow?
The Right Answer is: B As slowly as possible.
- Preserves the most cash flow.
- The more money you have the easier it is to reach affordable settlements.
- The goal is not to settle quickly or for less than you owe.
- The goal is to set up payment plans that are affordable and sensible.
Question 4 – Factors to keep in mind:
How important is the creditor to your survival?
- Just because a settlement offers favorable terms doesn’t mean it makes good financial sense.
- Just because you have the money, doesn’t mean you should part with it.
The right answer is: Creditor B, who is a necessary supplier. They pose an immediate threat.
- Without them, you cannot function as a business.
- Products, services or equipment that cannot be purchased anywhere else and are vital to the survival of your company and that are of the highest priority.
The wrong answers:
A. Ignoring collection attempts makes a bad situation worse and may escalate collection activity.
B. Telling the truth and asking for cooperation is honorable but if not handled properly may also escalate collection activity.
C. Settling for 10 cents on the dollar is great, IF you have the money.
D. A 2 year interest free payment plan is also great, IF you have the money.
The right answer is: E – Settle for the full amount of the debt plus interest with no payments due for 12 months and then payments over the next 12 months.
Even though this is the most expensive option, it is affordable and makes the most financial sense.
Question 6 – Factors to keep in mind:
Before making any settlement, you must weigh the benefits of settling with that creditor against the consequences of not being able to settle with other creditors.
The right answer is B: Give the $2,000 to Creditor B voiding the settlement with Creditor A.
- If you give the $2,000 to Creditor A and conclude that settlement, you still owe $10,000 (to Creditor B).
- If you give the $2,000 to Creditor B, voiding the settlement with Creditor A, you would only owe $8,000 (to Creditor A).
Question 7 – Factors to keep in mind:
- In order to save your business, you may have to sacrifice your credit score.
- Most suppliers do not report to credit reporting agencies even if you are personally liable.
The right answer is: D. All of these could hurt your credit score.
The wrong answers are:
A. If you don’t pay on time, your score goes down.
B. Settling for less than you owe decreases your credit score.
C. While making timely payments helps your credit score, when your cards are maxxed out, making minimum payments shows your inability to pay down your debt and lowers your credit score.
Question 8 – The right answer is: B. $50,000 payable at $2,500 a month for 20 months with payments starting a year from now.
- Twice as much but no money has to be paid out for a year.
- You will have $2,500 per month to settle with your other creditors.
- Even if you couldn’t afford the payments a year from now:
- no payments,
- no interest,
- no lawsuit,
- no more negotiating,
- no aggravation
- and you could still renegotiate new terms!
- Even if the terms included interest, this would still be a better settlement.
Question 9- Factors to keep in mind:
- When cash flow is tight, every dollar is precious.
- Settlement offers should be made according to the threat posed to your business.
- Serious threat creditors: are suing, have a judgment or are vital to your survival and you can’t get the goods, services or equipment from anywhere else.
The right answer is: F. None of these are a high priority.
None of these creditors pose an immediate threat to your business.
Extend settlement negotiations out over as long a time as possible because:
- It’s easier on your cash flow.
- It might enable you to build a reserve.
- The creditor may write-off the debt.
Question 10 – Factors to keep in mind:
The right answer is: A. Profitability
- Settling for less than you owe decreases your liabilities and increases profitability.
- Cash flow goes down when you pay the settlement.
- Credit score goes down as a result of a reduced settlement.
- Tax liability increases as profitability increases.
Question 11 – Factors to keep in mind:
- The more a creditor wants what you have, the more bargaining power you have.
- If you give them what they want without getting any concession, you give up your bargaining power.
The right answer is: C. Refuse to allow them to pick up the equipment.
- Just because you don’t need the equipment doesn’t mean you should unconditionally surrender it.
- You have more negotiating leverage when you have possession of the equipment if the equipment is worth something to them.
- You need a written settlement with the payment terms you agreed to before you surrender the equipment.
Question 12 – The right answer is: D. Combination of B and C
- Don’t be so anxious to settle what you can’t afford to pay.
- Call periodically to check the status of your account but not necessarily to settle.
- If a non-threat creditor isn’t trying to collect, let a sleeping dog lie.
Question 13 – The right answer is: C. Over 1,000
There are a total of
- 6 Collection Levels
- 10 Security Levels
- 3 Levels of Need
- 3 Levels of Aggressiveness
- 3 Levels of Likeliness to Sue (based on the amount owed)
[ 6 x 10 x 3 x 3 x 3 ] = 1,620 unique combinations
Question 14 – Factors to keep in mind:
- Just because you have the money doesn’t necessarily mean it’s a good settlement.
- There are always unexpected disasters. Breathing room is vital.
- The best settlement isn’t necessarily the cheapest.
- 50% lump sum is unaffordable: 6X more than you can afford.
The right answer is: C. Counter offer with a two year payment plan at 10% interest.
- Best settlement based on your cash flow.
- Original settlement is possibly affordable but gives you no wiggle room.
- The interest is insignificant.