Cash Is Tight, Who Gets Paid?
the bills are piling up beyond control
tough times, cash gets tight. Customers stretch their payments,
or stop paying altogether, or try to renegotiate their deals
with you. Meanwhile, you have to make payments to other people.
There is usually enough money in the checking account each month
to pay some of your obligations, but not nearly all. How do you
decide who gets paid, who waits for payment and who doesn't get
paid at all?
no mistake about it: In flush times, you want to pay everybody
on time, but in bad times, this simply isn't possible. Remember
the medics on M*A*S*H? When the helicopters brought in the
incoming wounded, the doctors had to perform "triage"
by separating the wounded soldiers into three groups: those who
must be treated immediately, those who can wait a little while
for treatment and those who are beyond treatment and must be
left to die ("triage" simply means "to divide
into three parts").
business, "triage" means you take all your bills and
divide them into three piles. The first pile gets paid on time,
even if you have to hit up your credit lines to do it; the
second pile gets paid as late as possible, with or without a
personal apology to the creditor for the late payment; the third
pile gets paid when you win the lottery.
are some suggestions:
1: People Who Get Paid on Time
Creditors who are
essential to the continuation of your business.
If you are a newsletter publisher, the folks who print your
newsletter get paid when due, even if you have to hit up your
credit lines to do it. If you don't pay your printers, they hold
on to your latest edition, and you can't make money.
Key employees or
contractors. If your
business gets most of its sales over the Internet, the person
who keeps your Web site up-to-date gets it back online when it
crashes--that person is "mission critical" to your
success. So pay them.
People who can
easily sue you, or make your life legally miserable.
That so-called "independent contractor" who works 60
hours a week for you; does not work for anyone else; has his
dental bills paid by you; and has a cubicle, computer and
secretary in your business office can do you a lot of damage if
he ever squeals to the IRS that he was really your employee and
you never withheld payroll taxes.
Debts that you
have personally guaranteed.
Most small-business credit cards, for example, have been
personally guaranteed by the business owner. If you fail to make
at least the minimum payment every month, they can put a lien on
your house, your collection of Elvis Presley memorabilia, your
children's college funds and your jewelry.
Your lawyers and
2: People Who Can Wait
People who yell
and scream a lot.
Creditors who realize they are near the bottom of your priority
pile will often yell and scream frequently for their money,
hoping that you will pay them off just to get rid of them and
avoid further aggravation. This is a very effective strategy,
especially when the amount involved is small. If you have any
spare cash at all after taking care of pile 1, get rid of the
screamers. You will live longer.
historically have waited for their payments.
Just because an invoice says "payable net 30 days"
doesn't mean you have to. Many creditors will wait 45 to 60 days
as a matter of course before they make any demand for payment at
all. Let them wait if they always have.
People who haven't
yet demanded payment.
Generally, people cannot sue to collect debts without first
giving you written notice by certified mail, called a
"demand letter" or "4-F letter" (4-F is
lawyers' shorthand for "Fee-Fi-Fo-Fum," as in
"the Giant is awake and is finally coming to get you, slow
and lumbering though he may be"). If you owe someone money
and haven't yet received a demand letter, you can breathe
easily, at least for a while. If a demand letter arrives from a
law firm in a faraway state where your business has no assets or
legal presence (like an office), you can still ignore it--courts
in your home state often will not recognize a "default
judgment" rendered against you in another state. When a
demand letter arrives from the largest law firm in your home
city threatening to put a lien on your house, move the bill to
3: People Who Don't Get Paid...Ever
Everyone who isn't
in pile 1 or 2.
People who don't
have a legal obligation to get paid.
If someone does work for you and there is no written agreement
as to payment (or verbal agreement with witnesses), who is to
say that the work wasn't a gift? Shame on the contractor or
supplier that does not insist on a written agreement before
doing business with you.
People you can
live without. If you
have a dental practice and the subscription to one of your
waiting-room magazines comes up for renewal, it's perfectly OK
to let it go. Get rid of as many contractual commitments as you
can, and focus on the few relationships that are absolutely
critical to your business success.
with frustrated creditors is never easy, and often painful. When
money is tight, however, it is important to remember that by
being "cruel" to some people, you are being
"kind" to others. Better to be cruel to creditors who
don't add daily value to your business and kind to those that do
than the other way around.
more thing: if creditors start harassing you by calling you at
home every night after 10 p.m. or before 8 a.m., leaving X-rated
messages on your voice mail, or threatening to throw you in jail
for failing to pay your debts, they may be violating the federal
Fair Debt Collection Act. Talk to your lawyers about that
statute, and make sure you pay them for their time!