The Cash Flow Blog

There may be times in your business-life when there simply isn’t enough money to pay all the bills.  Regardless of intent, you may not be able to service all of your debt.  At times like this, what are you to do?

Reality is, not all bills are a like.  So, for the sake of this discussion, let’s eliminate all bills such as utilities and non-strategic suppliers.  For the moment, let’s only consider business debt from strategic suppliers, partners, and similar business relationships. When you get behind in payment, what should you do?

Here are six tips to handling a business debt you can’t immediately pay:

• Communicate – The first thing you want to do is communicate with the company or individual you owe money.  Don’t run from them, return calls, and be honest about your cash flow problem.  Avoiding the problem doesn’t make it go away and lack of communication only escalates the issue.  Simple communication can make many problems smaller than first believed.
• Ask for terms – If payment is due in full, ask if a partial payment can be accepted.  Often the person or company you’re dealing with will give terms when asked.  For them, it may be an attractive way to manage their risk and exposure in the money you own them.
• Try to find an area of flexibility  – Related to asking for terms, discuss with the person or company you owe what their immediate needs are.  You may find they have an immediate need for money you can satisfy.  You don’t want to appear to be haggling over the money you pay, but sincere in trying to help them while asking for help yourself.  Look for a win/win solution you both can live with.
• Don’t make a promise to pay you can’t keep – This is a common problem.  You feel a bit embarrassed and desperately want to make a payment as soon as possible so, you give your best case scenario for payment as an expectation.  And then miss the expected payment date by days, weeks or months.  Your credibility is lost.
• Don’t overextend – Don’t make a payment that’s greater than you can realistically afford.  If you think you can pay $X, but feel safer paying $Y, discuss paying $Y.  What you want to do is be sure you service debt, but don’t dig yourself into a larger cash flow hole.
• Look for opportunities to factor a  receivable – Factoring is a legitimate business relationship with a lender whereby you sell your accounts receivable at a discount.  The buyer pays you immediately and collects the payment from your customer.  The discount percentage can vary and not all receivables are credit worthy of factoring, but for some companies this is a wonderful opportunity.  You can use the money you receive to service debt.

There are six tips to handle a business debt you can’t pay.  What would you add to my list?

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UPDATE:  Think twice before you use a credit card.