Should You Accept Stock Instead of Payment
Sometimes, a company that cannot pay its bills may offer you stock, or equity instead of paying what is owed. If you have a personal relationship with the company, or truly believe that their financial problems are temporary, this can be a tempting option. It may seem that by accepting stock options, equity, or other collateral, you are avoiding the hassle of collecting on the debt. Perhaps you want to give the company a chance to fix things in the hopes that may be able to make more money in the long run.
Accepting stock or equity may also feel good emotionally. No one wants to think that they’ve been misled, or that they’ve made a bad decision about when to extend credit. Unfortunately, it is rarely a good idea. For starters, unless the company is public, it is very difficult to turn your stock into cash. If the company is public and having financial difficulties, their stock is probably not worth very much.
If you are determined to pursue this idea with a company that owes you money make sure to do your due diligence. Remember, once you accept stock in place of payment, you are no longer a vendor, you’re an investor. If this company’s business model and current situation means you wouldn’t invest in them under normal circumstances, don’t do it now when they’re already in trouble. Make sure that you also research any potential tax implications, IPO plans, and the effect that not receiving money immediately will have on your own cash flow. Make sure any agreement you sign is fully reviewed by a lawyer and does not leave you responsible for other debts the company may have incurred or may incur in the future.
Most importantly, before accepting stock options or equity, make sure to consult with a commercial collection agency like The Kaplan Group. With our years of experience, there may be things we can do to get you the money you are owed. If you want to invest in a company, make sure that you’re doing so because you believe in the company and think it’s a good investment, not because you’re desperate to resolve a difficult situation.
At The Kaplan Group, we hope you never have to decide how to handle a client that no longer pays their bills, but if you do, we’re here to help.
About The Author:
Dean Kaplan is Principal at The Kaplan Group. Dean's expertise is widely recognized in the debt collection industry. His advice has been published in a number of industry newsletters such as Credit Today and InsideARM and he is a frequent speaker at industry events.