Figuring out who to pay when you experience cash flow shortages

There will always be times when your business will struggle with cash flow needs and many other things. A lot of companies simply stop paying their vendors because their customers are no longer paying them and they cannot come up with the money to stay in business. Your vendors provide you with the supplies and other things to stay in business so cutting them off from your accounts payable is one of the worst things you can do.

So who do you pay and who gets left out when you are experiencing cash flow shortages? This is why it is so vital to your company to plan for rainy days and have some cash reserves built up that will help to pay for the small business.

What you need to do is take a look at all the business finances and accounts payables and separate them into 3 groups:
1. Vendors and individuals that must be paid on time. This will include your employees as you must pay them in order to keep them on with your company. If they aren't paid, they may refuse to work until they receive your cash. Employees keep the company running so they need to be paid first and they need to be paid on time. If their payday is every other Friday, make sure they have the check every other Friday not every other Monday. Always pay the companies that make your business run like the electrical company, internet service provider, gas company, etc. When all of these things shut down, you have absolutely nothing to do and you aren't going to stay in business for very long.You also need to pay your credit cards and loans on time. You can try to renegotiate for a lower monthly payment amount to see if that helps but withholding payment from them will do significant damage to your credit.
2. Vendors and others that can wait for payment. Your printing company may only offer 30 days to pay but if you call them a lot of them will negotiate for Net 15 terms so you have a little extra time to make your monthly payment obligations. If the power goes out and it takes days to fix it, send a voided check to the power company. This is the best way to get their attention in a hurry and before you know it your power will be fixed and they may credit you for a few dollars since you couldn't operate your business. This also works with your landlord if they haven't fixed your air conditioner and other things that you are paying for. If you haven't been invoiced by a company, don't call them for the invoice. Let them take their time and send it to you. If anything you can buy a few extra days while you wait for them to finally realize you owe them money. Always mail your payments with checks; it will buy you a few extra days to collect money from your customers. Floating checks isn't the best practice but it might be your only option right now.
3. The final group is the individuals that you don't need to pay. This could be a supplier that delivered products late or sent you damaged products. Anytime a company or even an employee doesn't uphold their end of the bargain, you do not need to pay them. Just make sure you have a written contract on record that shows they agreed to non-payment if they messed up on their end.

It can be challenging for your business to deal with cash flow problems so you may want to look into accounts receivables factoring for help as well. This is one of the easiest ways to come up with the money you need to sustain your cash flow as you no longer need to wait months for your customers to pay their bills.