When a small business cash flow gets tight, there are going to be tough choices to make regarding who gets paid and who’s payments are going to get delayed.
If you have employees, then its going to be important to allocate available funds to payroll to keep them coming to work. If you require services and materials from suppliers, then timely payments are likely required to keep the lights on and production running.
So where do you cut back on outflows? Who do you decide not to pay? One of the most common choices made for delaying payments is government remittances.
Payroll deductions, income taxes, sales taxes, etc.
For many small business managers and owners, this seems like a logical choice…i.e. the government has lots of money, no one is in your face right away for payment, the money due is not critical to your ability to operate, and so on.
And in many cases, arrears with government related accounts can build for months before you start getting more serious sounding requests for payment.
While the government may be somewhat slow in reacting to your missed payments, their ability and powers to collect what you owe (depends on country and jurisdiction) can be far reaching.
How far reaching?
They can freeze the business bank account.
They can seize the cash in your account.
They can contact customers that owe you money and direct them to make payment to them.
And, if you owe funds for payroll source deductions, they can come after you personally regardless if the company in incorporated if you are a director of the company. Director liability can include payroll related expenses.
To be clear, I’m not a lawyer and all of the above may or many not apply to the jurisdiction that your business falls under.
But, regardless of where you reside, government collection activities can be scary. An once they have a bead on you, your cash flow planning will need to take on new priorities.
If you are in this situation, or close to it, you may be able to negotiate repayment terms for the arrears over a period of future months provided that you can clearly display a workable plan.
The overall point here is to be careful with delays in paying government remittances of any type, but especially payroll deductions. If you get to the point where you’re bank account gets frozen, it could be difficult to impossible to resolve the government back taxes and still continue to operate