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
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
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.