In my last post, I explained some of the strategies that can be implemented to improve cash flow. After thinking about this post I felt that I need to give a warning about paying vendors slow.
There are some vendors who will not work with you, even if you present them with a payment plan or explain that you are having cash flow problems.
Early in my CFO career I was the financial manager of a startup company that was spun off from a larger firm. When we separated from the larger company, we moved into a building the owner of the company owned in a rural town an hour outside of Nashville. The first month I was responsible for cash flow the water bill was due at the latest on "X" date. We were tight on cash and I decided to ride the water bill for a week or two. I had paid the Nashville Water Department slowly in the past with no issues. On "X" date, I was the only employee left in the building at 5 pm. Shortly after 5 pm, I watched out my window as a water department employee arrived and shut the water off to the building. It took almost 24 hours to get the water turned back on. This was not a good thing to happen when there are 10 employees or so working in the building during the day.
So be careful when deciding who to approach with a plan to pay outside of agreed upon terms. I've learned the hard way that some vendors just don't care what you are experiencing.
Some of the vendors who may not work with you include:
- Banks and lending institutions
- Equipment Rental Firms
- Credit card companies
Though slowing down payments is a good strategy, give careful consideration to which vendors you pay slowly as part of your cash flow strategy.