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To settle a current debt your company has agreed to make payments of $10,000, 3 months from now and $15,000, 9 months from now. When the first payment becomes due, the company finds itself short of cash and enters into negotiation with the creditor. Eventually the creditor agrees that if the company makes a partial payment of $4,000 at the 3 month point, the balance must be paid at the 6 month point.The first new payment

Question

To settle a current debt your company has agreed to make payments of 10,000,3monthsfromnowand10,000, 3 months from now and 15,000, 9 months from now. When the first payment becomes due, the company finds itself short of cash and enters into negotiation with the creditor. Eventually the creditor agrees that if the company makes a partial payment of $4,000 at the 3 month point, the balance must be paid at the 6 month point.The first new payment

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Solution

The first new payment of 4,000ismadeatthe3monthpoint.Thisleavesabalanceof4,000 is made at the 3 month point. This leaves a balance of 6,000 from the original $10,000 payment that was due.

The second payment of 15,000isstilldueatthe9monthpoint.However,becausethecompanywasunabletomakethefullfirstpayment,thecreditorhasrequestedthattheremainingbalanceof15,000 is still due at the 9 month point. However, because the company was unable to make the full first payment, the creditor has requested that the remaining balance of 6,000 be paid at the 6 month point.

So, the new payment schedule is as follows:

  • $4,000 at 3 months
  • $6,000 at 6 months
  • $15,000 at 9 months

This new schedule allows the company to manage its cash flow more effectively, while still meeting its debt obligations.

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