Quick answer
To negotiate with creditors as a small business, list every debt, sort creditors into the ATO, secured lenders, critical suppliers and everyone else, then contact each before the due date with a specific offer backed by a cash-flow forecast. Get every agreement in writing. If a lump sum would settle several debts at once, a refinance or property-equity loan can fund it.
Key points
- Contact creditors before the due date. A call early reads as honesty; silence reads as avoidance.
- Triage first: the ATO, secured lenders and supply-critical suppliers get attention before the rest.
- Offer a specific amount and date, not 'as soon as we can'.
- Get every deal in writing, and don't pay one creditor more than you've offered the others without a reason.
- A lump sum from a refinance or property equity can turn a maybe into a signed settlement, if the business is viable.
Rent, wages, the ATO and three suppliers are all due in the same fortnight, and the account can’t cover them all. The urge is to go quiet and sort out the loudest one. Don’t. The owners who come through this best are the ones who pick up the phone first.
This guide gives you the order to work in, what to offer each type of creditor, a message you can adapt, and a straight answer on when borrowing helps and when it doesn’t.
What’s the first step in negotiating with creditors?
Write down everything you owe, in one list, before you speak to anyone. For each debt, note the amount, the due date, who the creditor is, whether it’s secured, and what happens if it isn’t paid (supply stops, a letter of demand, a garnishee).
Then build a simple 13-week cash-flow forecast: what’s coming in, what’s going out, and what’s genuinely left. This is what makes an offer credible. A creditor can tell the difference between “we’ll try to pay in a few weeks” and “we can pay $2,000 on the 14th and $2,000 on the 28th, and here’s the forecast”.
The Australian Small Business and Family Enterprise Ombudsman’s small business debt guidance makes a point worth remembering: the disagreement is usually about timing and how payment will happen, not the amount owed. That is good news, because timing is negotiable.
Which creditors should I deal with first?
Not all creditors have the same power over you. Sort them into four groups and work down.
| Priority | Who | Why they come first | Your approach |
|---|---|---|---|
| 1 | The ATO (BAS, PAYG withholding, super) | Has firmer tools than any supplier, and some of the debt can reach directors personally | Keep lodgements current and ask for a payment plan; see below |
| 2 | Secured lenders (bank, equipment finance, landlord) | They can take the asset or the premises | Ask for a short repayment holiday or term extension before a payment is missed |
| 3 | Supply-critical suppliers | If they stop supply, you stop trading | Offer a part-payment plus cash on delivery for new orders |
| 4 | Everyone else (professional fees, one-off suppliers, subscriptions) | Lower leverage, lower cost of delay | Offer small instalments over a longer period |
The ATO is its own process. It doesn’t negotiate like a supplier, and a plan has to be set up with it directly. If it’s already said no, our guide on what to do when the ATO refuses a payment plan covers the next fortnight. The ATO’s own payment plans page explains who can self-serve and who needs to call.
What should I say to a supplier when I can’t pay?
Ring first, then confirm by email so there’s a record. Keep the call short and specific:
- Say it before the due date. “I can see I’ll be short on invoice 4127 and I wanted you to hear it from me.”
- Give one line of context. A big customer paying late, a job delayed, a bad month. No long story.
- Make a specific offer. An amount, a date and the instalments after that.
- Protect the relationship. Offer to pay cash on delivery for new orders so the balance stops growing.
- Ask for it back in writing. “Can you confirm that by email?”
A message you can adapt:
Hi [name], I’m writing to confirm what we discussed today. We’re unable to pay invoice [number] in full on its due date because [one-line reason]. We’d like to pay $[amount] by [date], then $[amount] each fortnight until the balance of $[total] is cleared on [final date]. New orders will be paid on delivery in the meantime. Could you confirm in writing that you accept this arrangement? Thanks for working with us.
Notice what’s missing: apologies that run for paragraphs, promises you can’t keep and any hint that the business is about to collapse.
Can I pay all creditors a share of what I owe?
Sometimes owners offer every creditor the same percentage, say 60 cents in the dollar, on the logic that it’s fair. It can work for a small number of trade creditors, but treat it carefully:
- Every creditor has to agree on their own. One refusal can unpick the arrangement, and a creditor who gets paid in full while others take a haircut may ask why.
- Get each deal in writing, stating that it’s accepted in full and final settlement of the account. Without that, the creditor can come back for the rest.
- Be even-handed. If you favour one creditor over others without a reason you can explain, you may create problems later if the business does fail.
If a few creditors refuse and you need a binding arrangement, that’s the point to talk to your accountant about formal options. ASIC’s guidance for directors describes two worth knowing about: safe harbour, which may protect directors from personal liability for insolvent trading if they pursue a course of action reasonably likely to produce a better outcome than an immediate administration or liquidation, and small business restructuring, where directors stay in control while creditors vote on a plan. These are real tools for the right business. We’d simply like viable owners to see the funding option before they get there; our page on what to ask before you call an insolvency firm lists the questions.
What if the creditor has already sent a demand?
Move the same day. A letter of demand is a warning. A statutory demand served on a company starts a 21-day clock to pay it, make an arrangement or apply to the court to set it aside, and the clock doesn’t pause while you negotiate.
If you’ve received one:
- Get legal advice immediately on whether the debt is genuinely owed and whether there’s a ground to dispute it.
- Open a conversation with the creditor’s lawyer or accounts team and put an offer in writing.
- Check whether a lump sum could clear it inside the deadline. That’s often the fastest way to end a demand.
If the debt has already gone to a collector or a court judgment is entered, the picture changes again; see our hub on business loans with a court judgment.
When does a loan make the negotiation easier?
Instalment offers work when the business has enough cash coming in to keep to them. They struggle when the pile of overdue accounts is bigger than the business can clear from trading, or when five creditors each want a slice of the same money.
That’s where a lump sum changes the conversation. A creditor will often accept less, or accept it sooner, for certainty. “I can pay you in full by the end of the month” is a different message from “I’ll send $500 a fortnight.” If a refinance or equity loan can fund several settlements at once, you can:
- pay secured and critical creditors in full and restore normal terms;
- offer the remaining creditors a prompt, final payment;
- replace several overdue accounts with one planned repayment.
The options we work with are property-secured business loans from $20,000 to $5,000,000 (first mortgages, second mortgages and caveat loans), and unsecured or cash-flow lines of credit, typically $5,000 to $500,000, sized on turnover and bank statements. Bad credit and ATO debt are considered case by case, for business purposes only. Our pages on refinancing expensive debt and restructuring versus refinancing set out how the two routes compare.
Lenders will ask for the full creditor list, so do the first step above before you apply. They want the loan to solve the problem, not delay it.
A word of honesty: if the business loses money at its core, a loan only moves the problem. Talk to your accountant first. The free Small Business Debt Helpline (1800 413 828) is staffed by financial counsellors who can help you test viability and arrange payment plans, and it costs nothing.
Want to see which route fits before you start ringing round? The way-out finder is a quick sort, or you can check where you stand in 60 seconds.
Illustrative example: a landscaping business with five overdue accounts
Illustrative only, not a real client or a real outcome. A Brisbane landscaping company has a slow wet season and two late-paying commercial clients. It owes its bank a repayment, a plant nursery, a hire company, a fuel account and its accountant, plus a BAS instalment.
The owner lists the debts and sorts them. The BAS goes to the ATO plan route. The bank gets a call before the repayment date asking for a two-month term extension. The nursery and hire company are supply-critical, so each gets a part-payment now, cash on delivery after that and the balance over six weeks. The fuel account and the accountant are told the dates they’ll be paid. All of it is confirmed by email.
Four of the five agree. The hire company refuses and wants the lot within seven days. The owner has equity in a commercial shed, and a short second mortgage clears the hire account and the first BAS-related balance in one go. The other creditors keep to the agreed dates, and the business trades on with fewer moving parts.
Why creditor negotiation is worth doing early
Most of this is straightforward once the list is on paper. The hard part is starting. If you’ve reached the point where the offers you can make from trading alone won’t cover what you owe, that’s a good moment to see whether funding could make the settlements stick.
We work with business owners in exactly this squeeze, and we start by asking what the business looks like today and which creditors really matter, not by looking for a reason to say no. Enquiring takes about 60 seconds, and your credit file isn’t touched just for asking. We don’t send your details to a pile of lenders, so your phone won’t start ringing. A real person looks at your situation and calls you to talk it through.
Please fill in the form accurately, including what you owe, to whom and any demands received, and what property you could offer. The clearer the picture, the better the chance we match the right option first time.
Frequently asked questions
Will a supplier really agree to a payment plan?
Often, yes, particularly if you're a regular customer and you ask before the invoice is overdue. Most suppliers would rather be paid late than not at all, and a court claim costs them money too. A specific offer, such as a part-payment now and the balance in set instalments, gets a far better hearing than a vague request.
Can I pay my creditors a percentage of what I owe?
You can ask, but a creditor is free to refuse, and each one decides for themselves. A deal to pay everyone a share of what they're owed only works if every creditor involved agrees. For a handful of trade creditors that's possible through direct negotiation. If you need to bind creditors who won't agree, that's a formal process, and your accountant or an insolvency practitioner is the person to ask.
Should I tell creditors the truth about my cash flow?
Yes. Be factual about what happened and what you can pay, and don't promise what the numbers can't support. A broken promise does more damage than a modest honest offer, and creditors often talk to each other.
What if a creditor ignores me and sends a statutory demand?
A statutory demand gives a company 21 days to pay or apply to set it aside, so start straight away. Get legal advice on your options and, if funding could clear it, speak to us at the same time. The deadline doesn't stop for negotiations.
Does negotiating with creditors affect my credit file?
An informal agreement with a trade creditor doesn't itself create a listing. But unpaid accounts can be listed as payment defaults on commercial bureaus, which is why it pays to settle terms before an account is passed on. Our guide on a supplier lodging a default on CreditorWatch explains what stays visible and for how long.
Where can I get free help negotiating?
The Small Business Debt Helpline (1800 413 828) offers free, confidential support from financial counsellors, including help with payment arrangements. The Australian Small Business and Family Enterprise Ombudsman also publishes a small business guide to dealing with debt, and your state or territory small business commissioner can help with disputes.