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  1. 1. CMKF Creim Macias Koenig & Frey LLP <ul><li>NEGOTIATION SKILLS </li></ul><ul><li>A WORKSHOP FOR CREDIT MANAGERS </li></ul><ul><li>*********************************** </li></ul><ul><li>The Fundamental Things Apply </li></ul><ul><li>****************************** </li></ul><ul><li>NACM Western Region Credit Conference </li></ul><ul><li>September, 2006 </li></ul>
  2. 2. CMKF Creim Macias Koenig & Frey LLP <ul><li>RICHARD C. MACIAS </li></ul><ul><ul><li>Creim Macias Koenig & Frey LLP </li></ul></ul><ul><ul><li>633 West Fifth Street, 51st Floor </li></ul></ul><ul><ul><li>Los Angeles, California 90071 </li></ul></ul><ul><ul><li>Phone: 213-614-1944 </li></ul></ul><ul><ul><li>Fax: 213-614-1961 </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul><ul><ul><li>www.cmkllp.com </li></ul></ul>
  3. 3. CMKF <ul><li>PAUL B. BERETZ </li></ul><ul><ul><li>Managing Director </li></ul></ul><ul><ul><li>Pacific Business Solutions, a Q2C Partner </li></ul></ul><ul><ul><li>P.O. Box 215 </li></ul></ul><ul><ul><li>Clayton, CA 94517 </li></ul></ul><ul><ul><li>Phone: 925-672-2644 </li></ul></ul><ul><ul><li>Fax: 925-672-3237 </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul><ul><ul><li>www.pacbizsolutions.com </li></ul></ul><ul><ul><li>www.quotetocash.biz </li></ul></ul>
  4. 4. CMKF <ul><li>Paul Beretz, CICE, the founder of Pacific Business Solutions, a Q2C Partner , directs a consulting company specializing in strategic planning, cash flow solutions and education. </li></ul><ul><li>He brings over 30 years of experience in global management and finance in low and high tech industries. </li></ul><ul><li>He has been an instructor in finance and management , for undergraduate and graduate degreed programs at St. Mary’s College of California, the University of California at Berkeley, Michigan State U. and the U. of Phoenix. </li></ul><ul><li>He is a frequent contributor to credit and finance programs for CMA, NACM and is the lead developer, instructor and Project Manager for the very successful FCIB Online Course in International Credit and Risk Management. </li></ul><ul><li>Mr. Beretz received his BBA from the University of Notre Dame , an MBA from Golden Gate University and the Executive Award from the Graduate School of Credit and Financial Management at Stanford University. He holds the CICE designation (Certified International Credit Executive), which was awarded by FCIB in 2001. </li></ul>
  5. 5. CMKF Creim Macias Koenig & Frey LLP <ul><li>Richard Macias is a partner with the law firm of Creim Macias Koenig & Frey LLP. The firm specializes in creditors’ rights. </li></ul><ul><li>Mr. Macias represents trade suppliers, manufacturers and financial institutions in litigation involving contract enforcement actions, bankruptcy, business transactions, bad faith claims, collections, antitrust and dealer terminations. </li></ul><ul><li>Mr. Macias received his law degree from Harvard Law School in 1975. </li></ul><ul><li>Prior to entering private practice, he served for three years as a criminal prosecutor in the office of the Los Angeles City Attorney and later was appointed to be Special Counsel to the City Attorney. He also was an Associate Professor of Law at Loyola Law School in Los Angeles, where he taught courses in litigation procedure, trial practice and negotiation skills. </li></ul><ul><li>He has written numerous articles on topics of interest to secured and unsecured creditors. He also has served on the Executive Committee of the Intellectual Property, Internet and New Technology Section of the Beverly Hills Bar Association. </li></ul>
  6. 6. CMKF <ul><li>OVERVIEW: WHAT IS “NEGOTIATION”? </li></ul><ul><li>Effective CREDIT negotiation requires knowing how to satisfy customer’s needs and amicably resolve differences. Negotiation has the following basic characteristics: </li></ul><ul><ul><li>Successful negotiation involves effective communication between two or more parties leading to an agreement, trade offs or compromise. </li></ul></ul><ul><ul><li>Each side develops an understanding of how to satisfy the other party and resolve differences. </li></ul></ul><ul><ul><li>Successful negotiations avoid ESCALATING the conflict. </li></ul></ul><ul><ul><li>The ideal objective is to accomplish a result where each party feels good about the result. </li></ul></ul>
  7. 7. CMKF Creim Macias Koenig & Frey LLP <ul><li>Movie Scene 1 – Movie begins with Ferrari trying to buy café from </li></ul><ul><li>Rick. Everything is negotiable ! </li></ul>
  8. 8. CMKF <ul><li>THE “FOUR “C’S” OF CREDIT NEGOTIATING </li></ul><ul><li>Just as there are the C’s of credit risk management, those attributes that help determine how risk can be evaluated (character, capacity, capital, conditions and collateral) there are the “Four C’s” of credit negotiating: </li></ul><ul><li>Caring : Be sincere. Listen to the other party and be interested in their issues. </li></ul><ul><li>Calm : This is a tactic that will encourage the other side to state their position and objections. You can turn this off when it is to your tactical advantage. </li></ul><ul><li>Clear : Confirm the other party heard you and clearly understands your position. </li></ul><ul><li>Comprehensive : Prepare yourself as best you can under the circumstances, time constraints and information available. Do your homework. Think about: Possible “What Ifs,” and “ What Nots,” </li></ul>
  9. 9. CMKF <ul><li>PREPARING FOR A NEGOTIATION </li></ul><ul><li>Define the Negotiation Scope and Approach: </li></ul><ul><ul><li>What are the key issues or obstacles that need to be addressed? </li></ul></ul><ul><ul><li>What are your restrictions ? (time, costs, etc.) </li></ul></ul><ul><ul><li>How will you effectively present your case? </li></ul></ul><ul><ul><li>What do you think will be major differences in the way the other party views the situation? </li></ul></ul>
  10. 10. CMKF
  11. 11. CMKF Creim Macias Koenig & Frey LLP <ul><li>Movie Scene 2- Rick & Ferrari have a test of “leverage” over the </li></ul><ul><li>“ hot” letters of transit. </li></ul>
  12. 12. CMKF Creim Macias Koenig & Frey LLP <ul><li>Leverage </li></ul><ul><li>Both sides must want something or else there is no point to be negotiated. Usually one side needs the bargain more than the other does. The difference in this wants/needs equation is leverage. </li></ul><ul><li>a. Credit negotiation inevitably is positional . </li></ul><ul><ul><ul><ul><ul><li>They have and you want. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Not very often you have a win/win scenario. </li></ul></ul></ul></ul></ul><ul><li>b. Where is the business relationship? </li></ul><ul><ul><ul><ul><ul><li>Are you still interested in doing business? </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Do they still want to buy? </li></ul></ul></ul></ul></ul><ul><li>c. The ultimate objectives of credit negotiations are -- </li></ul><ul><ul><ul><ul><ul><li>Immediate Dollars , or </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>A solid commitment for payment, or </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Information about financial issue that impact future credit decisions. </li></ul></ul></ul></ul></ul>
  13. 13. CMKF <ul><li>Example: You are sure of your position: Product was delivered on time, to the right location and was invoiced correctly. </li></ul><ul><li>Present your position from a logical perspective </li></ul><ul><li>Seek out response: “You agreed to 30 and are paying at 60 days help me understand why that is the case?” </li></ul><ul><li>You run the risk of being wrong and losing your logical argument. </li></ul><ul><li>See where the other side positions itself to effectively strategize further discussion. </li></ul>
  14. 14. CMKF <ul><li>Example: You are not able to verify your position before the negotiation: </li></ul><ul><li>Present your position from a logical perspective. </li></ul><ul><li>Don’t make claims you are unsure of. </li></ul><ul><li>Seek out a response: “I see you are paying in 60 days. Help me understand why? </li></ul>
  15. 15. CMKF Creim Macias Koenig & Frey LLP <ul><li>Their Style </li></ul><ul><li>You must anticipate how the other side will bargain. Is this someone who is combative or a compromiser, a poker player or a chess player ? You can't change them but you need to have a good sense of the other side. </li></ul><ul><li>a. Like types work together best. b. Blunting intimidation with firmness and calm. </li></ul>
  16. 16. CMKF <ul><li>Movie Scene 3-Ilsa and Rick in the Bazaar: 3 “styles” in one scene. </li></ul>
  17. 17. CMKF Creim Macias Koenig & Frey LLP
  18. 18. CMKF <ul><li>Example: The debtor tries to bully you in to an early concession. </li></ul><ul><li>Bullying has different forms. The debtor may be of strategic importance or the individual you are negotiating with has an </li></ul><ul><li>assertive style, using fear and threats to gain concessions. </li></ul><ul><li>“ I’ll take my business elsewhere if you force this issue.” </li></ul><ul><li>“ If you push me too hard we will file for bankruptcy protection.” </li></ul><ul><li>“ If you push me on this my manager is very friendly with your CFO. He will complain that you are being unreasonable.” </li></ul>
  19. 19. CMKF <ul><li>Example: Intimidating personality. </li></ul><ul><li>Individuals who exert power to intimidate the other side do it because it works. Sometimes the individual uses a senior title to intimidate. In reality they may only be influential in their own environment. They may not be used to push back. </li></ul><ul><li>A good negotiator will diffuse this tactic immediately: “Our Company does not do things the way you are suggesting and I won’t agree to it.” (i.e.: This puts a stake in the ground and makes it clear you will not be intimidated) Then begin to build your case around Logic and if appropriate sensitivity to the other side’s needs. </li></ul><ul><li>Emphasize that you are trying to find a solution that works for both of parties. “If we can’t work together to come up with a solution we both lose. We do have a contract that defines how we agreed to work together. “ </li></ul>
  20. 20. CMKF Creim Macias Koenig & Frey LLP <ul><li>Their Goals </li></ul><ul><li>Assessing what the other side wants requires advance preparation and research about the situation for the other side. You will only be able to estimate what they hope to achieve but this information gathering is critical to setting your own targets. </li></ul><ul><li>a. Who has the power to say yes ? </li></ul><ul><li>b. The search for potential common ground. </li></ul><ul><li>c. What has gotten in the way of an agreement to this point? </li></ul>
  21. 21. CMKF Creim Macias Koenig & Frey LLP <ul><li>Your Goals </li></ul><ul><li>Effective negotiators have a knack for developing a reasonable range of expectations but are not reticent about bargaining for a result at the higher end of the range. </li></ul><ul><li>a. Are there “no cost” options? </li></ul><ul><li>b. Setting a justifiable goal instead of merely a &quot;bottom line.&quot; </li></ul><ul><li>c. Do you know what you (and your boss) want? </li></ul>
  22. 22. CMKF Creim Macias Koenig & Frey LLP <ul><li>Movie Scene 4-Ilsa’s personality makes her unable to “pull the trigger” so she must “overcome” with other means. </li></ul>
  23. 23. CMKF Creim Macias Koenig & Frey LLP <ul><li>Your Style </li></ul><ul><li>Know your limits. Do you negotiate as a problem solver or are you a competitor? You may need to get beyond your own style in order to get the best result. </li></ul><ul><li>a. The clash between problem solving and competitive personalities </li></ul><ul><li>b. To get beyond style: </li></ul><ul><ul><ul><ul><li>Develop specific, reasonable but obtainable expectations </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Ask questions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Seek clarification </li></ul></ul></ul></ul><ul><ul><ul><ul><li>PREPARE </li></ul></ul></ul></ul>
  24. 24. CMKF Creim Macias Koenig & Frey LLP <ul><li>Strategy </li></ul><ul><li>Actors often say every play involves three performances: the one you rehearse the one you do and the one you wish you did. The same adage applies to negotiation. No two negotiations are alike and there is no one way to get to a good result. </li></ul><ul><li>a. Strategy is the plan or approach to achieving a goal. </li></ul><ul><ul><ul><ul><li>Most times we use a deductive strategy. We figure out their position from the information presented. If that is the case, do you have all the information you need ? </li></ul></ul></ul></ul><ul><li>b. Tactics are the means used to reach the goal </li></ul><ul><ul><ul><ul><li>To confront or not to confront, the ultimate tactical question. Do you use a frontal attack when you have the clear advantage on leverage? </li></ul></ul></ul></ul>
  25. 25. CMKF <ul><li>ESSENTIAL STRATEGIES FOR EFFECTIVE NEGOTIATIONS: </li></ul><ul><li>Be Prepared </li></ul><ul><li>Negotiate With the Decision Maker </li></ul><ul><li>Keep Your Powder Dry: Control When and How You React </li></ul><ul><li>Understand What They Want Before They Know What You Want </li></ul><ul><li>Match Your Style to the Other Side’s </li></ul><ul><li>Know and How and When to Walk Away </li></ul>
  26. 26. CMKF <ul><li>Example: The debtor opens with both logic and threats of their own: </li></ul><ul><li>The debtor is a slow payer. When confronted the reaction is: “We pay everyone slow to their terms. So if you want to do business with us that is how you will be paid. </li></ul><ul><li>The debtor using a blended approach, both Logic, “That is the way we do it”. And power and intimidation: “Take it or leave it.” </li></ul><ul><li>Reaction should make the same use of logic and power as the debtor. </li></ul><ul><li>Response: “We are a business too. We have to maintain adequate cash flow to stay in business. (Logic) Or, we are required by law to extend all customers in the same class of trade the same terms. We can not have a payment policy for your company that is different from your competitors.” (Fear/Power) </li></ul><ul><li>Ask the open ended question but tie it to your objective in the negotiation. </li></ul><ul><li>Response: “Considering our terms are N30, what can you suggest that will help both of us? </li></ul>
  27. 27. CMKF <ul><li>Example: The debtor reacts with a response that asks you to be sensitive to their needs. </li></ul><ul><li>Listen carefully. Respond with the needed sensitivity but tie your response back to your original position. Never lose sight of your objective in the negotiation. Have pre-planned the options you are willing to discuss. </li></ul><ul><li>Ask “What do you need?” “I will see what I can do.” “Let’s explore the options.” Avoid a heavy handed response that will change the tone and may lead to confrontation. </li></ul>
  28. 28. CMKF Creim Macias Koenig & Frey LLP <ul><li>Information Exchange </li></ul><ul><li>This is usually a part of the initial stage of a negotiation where the tone of the negotiation is set. What can you say and what are they telling you? Is the information flowing freely or is the other side holding back? You should be probing for insight about their issues and goals. </li></ul><ul><li>a. If you start off with just a demand for payment and you get a &quot;no&quot; in response, then nothing will happen. There is nothing to negotiate. </li></ul><ul><li>b. If you start out with, &quot;What is you business doing?&quot; or &quot;How are sales?” or &quot;What are your plans down the road?&quot; you may get something going. </li></ul><ul><li>c. Are there independent sources of information? </li></ul><ul><li>d. Negotiating over the phone or internet vs. in person- </li></ul><ul><ul><ul><ul><li>&quot;Cool&quot; vs. &quot;Hot&quot; media </li></ul></ul></ul></ul>
  29. 29. CMKF <ul><li>THE “ART” OF NEGOTIATING </li></ul><ul><li>Example: The debtor offers a position that is not clear and must be better understood and can be challenged: “I’d like to pay you but our system and approval process slows our payments.” </li></ul><ul><ul><li>Ask probing open ended questions that will reveal the real problem: </li></ul></ul><ul><ul><ul><li>“ How long is your average receipt of invoice to payment cycle? What specific parts of the process cause the delays you are referring to? What can we do to speed things up.? Can we work together to streamline the current process?” </li></ul></ul></ul>
  30. 30. CMKF <ul><li>Effective Concessions. Be Prepared to “TRADE OFF”. </li></ul><ul><li>IF YOU GIVE SOMETHING UP, GET SOMETHING BACK IN RETURN. </li></ul><ul><li>Know what you want to have and what you have to have as the outcome of the negotiation. </li></ul><ul><li>Anticipate what you can give up in a negotiation. Be prepared to do so if absolutely necessary. </li></ul><ul><li>Avoid deadlocks : Ask the other side. “I hear what you are asking but how do we make that work for both of us?” </li></ul><ul><li>Example: “OK I understand you have to delay payment. I can accept it before my month end as you proposed. However, to agree to this you will have to bring the entire account current for shipments to be reinstated.” </li></ul>
  31. 31. CMKF Creim Macias Koenig & Frey LLP <ul><li>Effective Concessions. </li></ul><ul><li>Some strategies may be more effective than others in certain situations. </li></ul><ul><li>a. Stakes High / Future Relationship Important (Ongoing Business Relationships) </li></ul><ul><ul><ul><ul><li>Problem solving and compromise? </li></ul></ul></ul></ul><ul><li>b. Stakes High / Future Relationship Not Important (One Time Business Transaction) </li></ul><ul><ul><ul><ul><li>Competition or problem solving? </li></ul></ul></ul></ul>
  32. 32. CMKF <ul><li>TURN CULTURAL DIFFERENCES INTO ASSETS RATHER THAN LIABILITIES: </li></ul><ul><li>In business today, selling domestically or internationally we are dealing with cultural diversity. There is a need to be sensitive to cultural differences and how to apply them in negotiating situations. Cultural diversity is a reality in business today. To be effective you must be aware of cultural differences in any contact domestic or international. </li></ul><ul><ul><ul><li>Don’t apply the Golden Rule </li></ul></ul></ul><ul><ul><ul><li>Understand What is Offensive </li></ul></ul></ul><ul><ul><ul><li>Be Sensitive to the Sequence of Business and Negotiation </li></ul></ul></ul><ul><ul><ul><li>Separate socializing and negotiations </li></ul></ul></ul><ul><ul><ul><li>Be an “Effective Foreigner” </li></ul></ul></ul><ul><ul><ul><li>Create a Practical Negotiation Framework </li></ul></ul></ul>
  33. 33. CMKF Creim Macias Koenig & Frey LLP <ul><li>Movie Scene 5 – The drama moves toward a climax with Rick selling café to Ferrari & sealing the bargain. </li></ul>
  34. 34. CMKF <ul><li>Commitment to the Bargain or the POST NEGOTIATION phase: </li></ul><ul><ul><li>Documentation of the agreement </li></ul></ul><ul><ul><li>Meet your commitments </li></ul></ul><ul><ul><li>Follow closely to see that the other side meets its commitments and react swiftly if they do not. </li></ul></ul><ul><ul><li>Review the results of major negotiations: </li></ul></ul><ul><ul><ul><li>What was the desired result? </li></ul></ul></ul><ul><ul><ul><li>What was the outcome? </li></ul></ul></ul><ul><ul><ul><li>What could you have done better? </li></ul></ul></ul>
  35. 35. CMKF <ul><li>YOU HAVE 2 EARS AND ONE MOUTH…. </li></ul><ul><li>SO LISTEN TWICE AS MUCH AS YOU SPEAK! </li></ul>
  36. 36. CMKF Creim Macias Koenig & Frey LLP
  37. 37. CMKF Creim Macias Koenig & Frey LLP <ul><li>NEGOTIATION SKILLS </li></ul><ul><li>A WORKSHOP FOR CREDIT MANAGERS </li></ul><ul><li>*********************************** </li></ul><ul><li>The Fundamental Things Apply </li></ul><ul><li>© 2006 Richard C. Macias & Paul B. Beretz. All rights reserved. </li></ul><ul><li>Casablanca © 2003 Turner Entertainment Co. & Warner Bros. Entertainment, Inc. </li></ul><ul><li>All material used for educational purposes only. </li></ul>