Negotiation Letter to Bank Which is Withdrawing Funding
When a bank withdraws funding it can have very serious implications for the account holder. A negotiation letter can be sent to try and stop the withdrawal or to come to some form of compromise over this financial problem.
Why a Bank Would Withdraw FundingThe main reason a bank will withdraw funding is because the account holder is having financial difficulties. It could be that a business is not making regular payments and a bank could call for immediate repayment of a loan. Abuse of banking facilities such as an overdraft can lead to a bank withdrawing this facility and asking for immediate repayment of the overdraft. Banks are legally entitled to withdraw funding and this will be stated in the credit contract’s terms and conditions.
Intent of the Negotiation Letter to BankThe main intent of the negotiation letter when a bank is withdrawing funding will be to buy some breathing space. There are a few alternatives that can be presented to the bank and the success of the alternatives will depend on how realistic they are. Although banks are seen as faceless entities with only profits in mind they will sometimes listen to a customer if a solution to the problem is available. If a customer has a good track record with the bank then some form of negotiation should be considered.
Presenting Alternatives to Immediate Withdrawal of FundingTime to pay is one of the biggest factors if a bank is intending to withdraw funding. Using time periods as a negotiating point can sometimes prove successful. If a bank requests immediate payment of an overdraft then simply negotiate for time to pay. Ask for the full overdraft to be split into individual payments over a matter of months. This is called a reducing overdraft and makes repaying a much easier task. This can work with any number of different lines of credit and is not an unreasonable request to make.
Honesty is the Best Policy in a Negotiation LetterWriting to the bank and explaining truthfully why the financial difficulty has arisen may be of some help during the negotiations. Everyone goes through certain times of financial difficulty whether it is a personal customer, a business or indeed banking institutions themselves. By explaining the problem honestly and presenting a solution to the problem the immediate withdrawal of funding might be postponed. Do not make unrealistic proposals that have no hope of being fulfilled; this will only lead to greater future problems.
Tone of the Negotiation Letter to BanksIf a negotiation letter is being written the tone should be kept businesslike and polite. Mention in the letter that the bank’s position is understandable but it is hoped that a solution can be found to the immediate withdrawal of funding. Terms such as ‘mutual long standing business relationship’ and ‘goodwill’ can be placed in the letter. Bringing in timescales will also be a good idea as it gives the bank a cut off date to aim for if promises of rectifying the situation are not met.
Sample Negotiation Letter to Bank which is Withdrawing FundingName
Name of Bank
Re customer account no:
I am writing in response to your letter dated (date) demanding immediate repayment of my (amount) overdraft facility. I completely understand your position in this matter and after reviewing my statements it does look as if I have been overusing the overdraft facility. Specifically by going over the agreed overdraft a number of times in the last year. I hope that by explaining the situation we can come to some form of solution to avoid the immediate withdrawal of funds.
As I made aware to the bank when I opened a business account, the purpose of the overdraft was to be used as monthly capital. I decided to use the overdraft method instead of funding such as a loan to keep my monthly costs to a minimum. Over the past six months I have unfortunately had customers who were not paying invoices within the one month payment date. This has at times caused cash flow problems and this is where I have had to go over my authorised overdraft. I am slowly becoming more organised and taking a stronger method with customer’s who do not pay invoices on time.
At present it would bring me extra financial difficulty to pay this overdraft immediately in one lump sum. I would like to request a reducing overdraft of (amount) over a six month period, ending on (date).
Your understanding in this matter is gratefully appreciated and I look forward to hearing from you soon.