When things are going well, your cash grows, payments to creditors don’t miss a beat, plus they are thrilled to get regular payments on time. In addition, your own customers pay on time and there is an equilibrium that keeps everyone happy. But as we know all too well, things don’t always go the way we want.

What happens when your cash flow slows, and the bills, as they ever will do, keep coming? In this article, we look at who will get paid and who won’t. Not a pretty choice, but one that is vital to surviving when cash flow becomes a trickle, or worse still, stops altogether.


Business is booming, cash flows are smooth. The hardest thing to accept at times is that it will not always be like this. This is not negative thinking, but business sense. Most businesses are cyclical, meaning that at some point there will be a downturn, and perhaps the best way to deal with this is to do so before it happens. Accept reality, have a plan, and ensure that you stick to it.

You must pay your creditors on time to ensure continuity of business. In addition, you need to make certain that there is no slippage in the payments received from your customers.

Maintaining this good practice now will make it much easier in the future. If you give anybody the chance to take advantage of you, then in today’s tough market they will likely seize the opportunity to do so. Make sure that your actions are exactly as your intentions – consistency is vital.

To avoid issues developing, remember that communication is key. Be prepared to discuss, but moreover be prepared to listen. A good business lesson is that we are born with two ears and one mouth, so you learn a lot more by listening than you do talking. What are your customers trying to tell you? Are things going to get tough for them, and if so how do you act now? Extending credit that will never be met is not a good answer, but a dynamic flexibility to business is. Your partners will welcome this open and honest approach when dealing with you.


Times will get hard and cash is the first thing to run out. Since you are reliant on this flow, your business will suffer. Wouldn’t it be good if during the good times, you had built up a contingency reserve for this very moment? Of course it would, so make sure you have done so or start now.

But as cash flow decreases, those bills won’t. They’ll arrive on time every month without question, and your creditors may be suffering themselves, and thus may lean a little heavier on you than they might have done before. Could you preempt this by re-negotiating with vendors before trouble begins? If you’re going to delay payments, be open about it, and if necessary, dip into the newly established contingency fund. That’s why you created it in the first place.


The simple truth that you must ascertain is who is at the top of a very important list of creditors, and who might be happy to be the last person getting paid. By happy, perhaps less upset would be more appropriate. One approach is to apply a simple rule of three – Now, Later, and Whenever – to your creditors, in determining who gets paid when.

The ‘Pay Them Now’

This would include employees, who depending on severity of the situation may need further selection. For example, sales reps would be priority since no sales equals no cash flow. The website team if online is a major part of the business; key creditors that have liens on your receivables or other assets without whom the business cannot continue; debts that you have personally guaranteed; and legal settlement payments.

The ‘Pay Them Later’

Believe it or not, there will be some that have always waited longer for payment on the basis that they get paid in the end, and that pushing for quicker payment may, well, result in no payment at all. Those include creditors with a strong business model, great cash reserves, and established, larger companies who can handle small hiccups to a payment schedule.

The exact opposite are those that will demand payment right away at the top of their voice, and will continue to do so until they get it. Not unlike a bully, if you give in to them you will undoubtedly see them revert to this type of behavior time and again. So set a precedent now to enjoy some peace later on, and make it an ongoing business rule not to do business with bullies.

Finally, there are some businesses that forget who owes them anything at all, and if they can’t remember, don’t go out of your way to remind them. Don’t forget that only once they make a formal request can they then take further action, if required. Rather than wake a sleeping giant, let them stay quiet, but don’t forget they will still be there once they have a wakeup call.

The ‘Pay Them Whenever’

In short, anyone else not listed in the ‘later’ and ‘whenever’ piles, and those who did the work without a contract or written agreement (that’s just bad business), or those who performed a service for you without expectation of payment (they do exist).

In business, if you are not able to learn to say no, and moreover back it up by your actions, then you are truly going to struggle when things get tough. Keep contacts that add something to your business and remove all those that offer no value. It is the old adage of radiators and drains. Keep close to you those that radiate good business and offer value, lose quickly those who drain you of the will (or cash flow) to carry on.

Like in life, running a business can be easier if you put in the time and create plans for inevitable downturns. Run what-if scenarios for possible major events before they arise, ensure you recognise your staff and vital creditors, keep communications open with your vendors, and when you are able to do so, create a contingency fund for those bad times. Hopefully you never need these, but it’s certain that those who failed never had them to fall back on in the first place.

Bob Shoyhet is CFO at Melillo Consulting.

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