The keys to successfully negotiating a settlement with a problem customer, like any other negotiations, are preparation, careful consideration of all the facts and circumstances, and plain old fashioned common sense. Here are seven guidelines offered from the perspective of a creditors' attorney that will always serve you well in negotiating with debtors:

1. Never bid against yourself. Don't ever make the first offer. If your customer feels that a settlement is in order, let him make a reasonable offer first, and then consider the merits of that offer.

2. Find out all you can about the debtor's financial condition. The most basic reason that a debtor wants to settle is financial problems. Yet many creditors do not obtain enough financial information to make a sound judgment. If the debtor is a corporation, the availability of financial information is limited only by your time and effort. First, you can request financial information directly. Or, most creditors' attorneys have financial forms to be completed by the debtor. If the debtor claims it cannot furnish statements prepared by an accountant, you should obtain financial statements that are signed as true and accurate by the principal. And you should include a clause that the debtor relied on the statements in making the settlement. Thus, if the financial information turns out to be incorrect, you can proceed against the principal owner individually for misrepresentation.

3. Allow reasonable scope for negotiations. Many creditors take the position that they want the full amount and allow little room to their attorneys to make settlements. If any leeway is allowed, it is in the 10% or 20% area. Some creditors will establish this as a policy. In the banking and credit card areas, this will happen frequently. Nevertheless, this is flawed reasoning because every debt must be looked at on its own merits. The financial problems of the debtor are extremely important in settling any debt. It is far better to retain a small cash payment then be faced with a bankruptcy petition where there will probably be no payment or a small payment of less than 10%.

4. Remember there are almost certainly other creditors. Dealing with a debtor which is asserting financial difficulties, it is reasonable to assume that it is not paying several creditors as well. The number is not important. There are five pieces of pie to feed 10 or 15 hungry creditors. Creditors who focus on information, investigation, and common sense will walk away with their hunger partially satisfied. The remaining creditors will likely go hungry for a long time and may ultimately starve.

5. Leverage your psychological advantage from the fact that the negotiations have begun in your attorney's office. At this point, the debtor is faced with the inevitable conclusion that it has been referred to an attorney and that a suit is imminent. If a settlement cannot be negotiated at this point, the next best time to open negotiation of settlement is immediately after a summons and complaint is served upon the debtor.

6. Forget win-win. Remember that settlements make both parties partially unhappy. A settlement that makes one party totally happy and the other party totally unhappy will probably never be consummated.

7. Don't be overconfident that your case is rock solid. The client with a rock-solid case is usually ready to accept the uncertainties of litigation. The attorney, on the other hand, is well aware that even a "rock-solid" case may be lost in litigation for any number of reasons including, but not limited to, witnesses inadvertently offering the wrong answers, documents being lost or unavailable, witnesses leaving for parts unknown or passing away, judges rendering decisions subjectively rather than objectively, cases being reversed on appeal for technical errors during the trial, and of course the fact that mistakes in strategy may be made by both the client and the attorney. Experienced creditors' attorneys tell us that many times cases that appeared to be losers turned out to be winners, and cases thought to be sure winners turned out to be losers.

   There is no such thing as a rock-solid case. For this reason, most attorneys are attuned to the settlement process, and so should you as a creditor.