ĎCash dripsí and creditors

Monday, October 7, 1991

   There are many talents required for running oneís own business, but few are more important than the art of putting off creditors.
   Not that all creditors are bad Ė some have genuine needs. But most are self serving, parasitical, faceless robber barons looking to suck the last drop of cash flow from your meager supply.
   Creditors are predators. Theyíll hound you, trap you, harass you. Every small business owner has had the recurring nightmare of being chased by a roving band of creditors, only to discover in horror that your naked body can move only in slow motion. Most wake up in a cold sweat before the creditors catch them and tar and paper them with invoices.
   Some do not
   Never mind that you owe them the money. Thatís not the point.
   Theyíll get their money, sooner or later. The point is to make it later.
   It all comes down to cash flow, a misnomer if I ever heard one. In small businesses, cash does not flow. If you squeeze hard enough, you may get a trickle, and in some cases a drip. But I suppose "cash drip report" doesnít go over well with the banks.
   I certainly advocate doing everything possible to pay all bills when due. Itís good business, and itís good for your health. But all small businesses have their ups and down, and in down times when the cash isnít there to pay everyone on time, hard choices have to be made. The cash drip will only go so far, so somebody has to wait.
   Letís assume I have $10,000 in accounts payable for the month, but only $5,000 in cash available. There is one major account owed $3,000 and 25 smaller accounts owed the balance of $7,000. So who gets the $5,000 available?
   Answer: The one who wants it the most, besides me.
   The age-old theory of "the squeaky wheel gets the grease" holds up very well in these circumstances. My theory has always been, "When in doubt, pay no one." As the phone starts ringing, the checks start flying.
   The theory is sound. Cash flow applies to the creditors also. Some have it, some donít. It doesnít take long to find out which creditor is the most needy. Theyíll begin buzzing the first day an invoice is overdue. Others wonít call for six months. In two years, the reverse may be true.
   The small companies that call are generally very understanding. For a while. They are probably having similar problems and making similar excuses. And they canít afford to alienate any of their customers by being too rude. These companies quickly enter the pleading stage.
   Then there are the larger companies, the majors, with built-in account receivable departments. This is a different breed of creditor, impersonal and distant. They donít call and beg for your money, as do the smaller companies with poor cash flows. These people are bounty hunters, just doing their job.
   They donít even want to hear your excuses. When you talk about poor cash flow, theyíll say you should have planned better. When you tell them itís difficult to plan for a devastating earthquake or tornado, theyíll say you should have planned better.
   In most cases, these creditors are sitting on a raging river of cash flow. Of all the creditors, they are without question the least needy. But theyíre generally the first to be paid, because they roar the loudest and have the least concern about repeat business. They simply wonít ship any future orders until the account is current.
   So after paying the majors, and then the squeakiest of the small companies, Iím left with 15 or so small companies owed $5,000 and no money to pay them until at least next month. No one likes to be in that position, but for most, itís a reality of small business.
   Everyone has their own style of dealing with this situation. Personally, I prefer to go on vacation, but that option isnít always available. If pressed to stick around, my next move is to pray the fairies drop a big bundle of cash in my lap so I can make everyone happy. Barring that, I simply hope no one calls for a least a month. The odds favor the fairies.
   When the pesky calls do start pouring in, and you have the urge to swat the phone rather than answer it, you know the game has begun.
   You wonít win, and itís not much fun to play, but you have to participate. Cash drip will do that to you.


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