As we continue through the current recessionary impacts still being experienced in 2010, there are going to be periods of time where a cash flow crunch will impact many businesses regardless of size.
So when there is less cash to go around and choices are going to have to be made as to who gets paid and who doesn’t, here are some things to consider.
First, build out a cash flow plan that identifies the available amount of money you are likely going to have to work with once you allow for all essential expenses including your payroll.
Next, proactively talk to your trade creditors and outline to them your plan to get them paid. They may not like what you have to say, but they’re going to be more likely to work with you if you ask versus just surprising them by not paying without an proactive explanation.
Third, think twice about getting behind with your government remittances, especially payroll deductions. Government agencies have the right to seize your bank account and contact your customers for repayment of accounts receivables.
While it may seem like the obvious choice to short pay government agencies, be careful with this tactic because of the power to collect these agencies have.
Fourth, update your cash flow projections on a regular (at least weekly basis) and make adjustments to your plan as required. Nothing ever goes according to plan, especially when it depends on the actions of others, so continually develop a new base line to work from, make adjustments to your plan, and communicate any changes as required to parties you owe money to.
Fifth, if you need to dip into personal credit cards, at least make the minimum payments to minimize the damage to your credit rating. High credit utilization will bring down your credit, but it will quickly bounce back once your balances are paid down. Late payments of greater than 30 days on the other hand, can have a devastating impact on your credit that can last for years. If you eventually need to refinance, keeping your credit in tact will become important to avoid the lowest forms of credit.
Most payment trade offs are judgment calls that are better made and managed when you develop intimate knowledge of your cash flow and maintain close communication with your creditors.