Photo of four horsemenIn a chapter of the New Testament, The Four Horsemen of the Apocalypse are generally agreed to symbolize Conquest, War, Famine and Death. We may not agree on the several interpretations, but I believe we can agree that when it comes to non performing assets, distressed loans and workouts, the results may be similar. An organization may survive – but it won’t be pretty.

“What’s the difference between a Hollywood movie, a workout for a non-performing loan and a bank robbery? Not much. Bring together a team of the very best experts in specific fields for a (relatively) short period of time with a common goal.”
…Tim Paulsen, author of Paid in Full

The steps involved in bringing any loan or account up to date involve reminders, persuasion, and then negotiations. And they should proceed in that order. Persuade rather than negotiate. In persuasion one offers reasons while in negotiations – concessions. A reminder is simply the squeaky wheel and there is no reason to enter into persuasion if a customer can be ‘reminded’ to pay.

When all of those steps have not worked and a firm may be at the end of their rope, you are faced with deciding on which of the four horsemen of the non-performing asset will suit you best.

One – Jump off the horse – Sell

You have other and hopefully better things to do with your time. The account or the asset may be sold to another party who will find it profitable through a combination of their business acumen and strategy combined with a (sometimes sizable) discount.

There is nothing wrong with making your asset more attractive and getting the most you legally and morally can, but although all may be fair in love and war, despite our horsemen reference, this is business. You need to be careful of fraud or misrepresentation. It would be expected and even admirable to wash and wax your Nissan Versa to get it ready for a sale, but don’t try to pass it off as a Lexus.


  • You may have cash flow issues of your own and an immediate payment, albeit with a discount, may be preferable to even a successful workout for the full balance that takes 18 months.
  • Workouts require time and expertise and you may be short on one or both.


  • Selling the asset (like liquidation) may improve the risk of the creditor it tends to terminate the relationship with the customer
  • It may jeopardize the sales of other financial products to that customer
  • May jeopardize future sales to that customer
  • Could harm your reputation

Two – Pull up on the reins – Wait

The asset may indeed be non-performing by just about any definition of accounting yet for various and verifiable reasons – may not be at risk. An example might be an asset backed up and supported by government with budgetary or bureaucratic issues, but ‘good for the money’

The risk in a situation such as this one may be the tying up of assets and funds.


  • It is a gentle ride. Of the Four Horsemen, waiting is the least time consuming and expensive option (presuming that you do get paid).
  • Your customers will love you for itIn our section of the back room of finance we know that we’re not running in a popularity contest, still – this option is the one most desired by the customer.


  • It’s been said that all things come to those who wait. It ain’t necessarily so! The customer said, “Don’t worry about it. Things could be worse. “So, I didn’t worry about it and sure enough…they got worse.Continually being pushed off by the customer, standard stalling tactics are a different story and should be resolved thru standard collection techniques.

Three – Force owner to sell the horse – Liquidate

It could be compulsory or on a volunteer basis and while there are a number of grounds for liquidation, for our purposes, most of the time it is because the company is unable to pay its debts as they fall due.

In this situation a company cannot or will not meet their obligations.


  • It may be the only way to get a financial settlement and often the sooner the better. Some firms may not want to face the music and the asset to loss ratio will do nothing but become worse.
  • Accuracy – Maybe recognize an NPA quicker than letting it linger and cloud audit reports


  • If you and other creditors are forcing the firm into liquidation, your customer is gone and the corporation may never return but the individual players may surface in the future with their pockets empty but memory intact
  • Potential damage to your reputation. “They wouldn’t work with me!”
  • Lawyers and accountants will love you. They tend to be the only ones who tend to make money in situations like these.

Four – Turn the horse around – the Workout:  

Everybody has to roll up their sleeves and pitch in but there is also the chance, sometimes the only one, for a win for all involved when management, owners and creditors attempt to nurse an organization back to health.

The reasons for an organization to be may or may not be of their own making. Problems could be with management, ownership; competition for them or their major clients, expansion, technology, market loss, the list goes on, perhaps proving that Murphy was indeed an optimist.

However, if the light at the end of the tunnel has not been turned off to conserve power, it may be determined there is a reasonable chance of the firm’s survival. If there is a bath to be taken, we’re in this together. Or, we could say, everybody gets a haircut, but enough of the analogies, you get the idea.

It is best to identify a single distressed or workout manager (rather than a committee or even a team) and then identify responsibilities. They would include the identification of suitable financial action as well as decisions and recommendations on non-financial strategies.

Not for the faint of heart, this option involves the most work but may also be the most rewarding not only financially but personally “you have the opportunity save an organization as well as jobs and more”

What can a successful workout team achieve? Not only the recovery of the investment/asset, but also helping an organization to get back on its feet and return to being a good great customer!

After all, if that isn’t the objective – what’s a recovery department for?

Author’s Note: This article was inspired by the work of Dr. Thomas C. Knecht, partner at Roland Berger Strategy Consultants.

To download a pdf copy of this article, click the following: The Four Horsemen of the NPL