In my experience the worst job in any business is to be the person who has to answer phone calls from suppliers who are demanding to be paid when there’s no money to pay them.
Sometimes they have bargaining chips (no more goods without payment first) and sometimes they don’t. Sometimes they’re friendly but persistent; more often they’re not, sometimes they can be quite rude, but it makes no difference – it is always awful to have to say “no, we can’t pay you today”.
I wish I had a magic wand to create the cash instantly, but I don’t.
There is no quick fix. Instead, you need a plan.
The first thing to do is to work out why there’s no cash (no, I don’t mean “cos we spent it all”!). What I mean is
– Is the business trading profitably?
– Are the customers paying?
– How quickly do you need to pay your suppliers? On shorter terms than you give your customers?
– How much are you paying for other things? Loan repayments, finance contracts and old debts are all examples.
Next you need to set out a timeline of what you need to pay, when. (Note – it is always better to plan first if you can, before you run into problems – it might avoid this kind of trouble!)
Initially it’s a good idea to plan on a daily basis. The bank statements from the last few months will help you work out when the cash needs to be available; wages every week? Loan repayments at the end of the month? PAYE by the 22nd?
I have found that while writing things down doesn’t actually provide the solution, it does make it easier to see the way forward – you know how much cash you need and when you’ll need it, and that provides targets that you can work towards.
Sticking to your plan requires difficult decisions and conversations. Please don’t be tempted to take the easy way out and say “Yes, I’ll pay you tomorrow” unless you really can. It only makes things harder in the long run – you loose the respect and trust of your suppliers and they will only call back, with less patience when the payment doesn’t arrive.
It will probably take months, if not years, to get on top of your cashflow but if you start now and you are disciplined about it it is in your power.