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Poor cash flow is a constant pain in the neck for some business owners. If you interact and converse with most business owners today you will discover a common theme emerging: the day-to-day struggle of chasing outstanding payments and juggling creditors who themselves are pressing for payment.

While you may be doing everything you can to encourage debtors to pay what do you do if your creditors are putting equal if not more pressure on you to pay up?

Here are four steps you can take.

Step One: Assess Where You Are Now

If the pressure is on there is a high probability you have lost sight of the extent of your problem. When you are constantly bombarded with phone calls and letters it’s too easy to ignore the situation in the hope it will go away. But this is not the time to bury your head in the sand.

Part of the key to successful cash flow management is knowing exactly where you stand. Forewarned is forearmed.

So your first task is to write down precisely how much you owe and to whom. If your bookkeeping system is set up around stacking invoices in the corner of your office, or leaving them languishing in your email in-box, access them out and list them one by one with names, amounts and dates due.

Acknowledging and accepting the extent of the problem is an essential first step.

Organization is key to having a successful business. Do not be fooled by business owners who seem like they are a mess. Perhaps they are in a booming industry so they can afford to be a little messy — because customers are willing to tolerate it. Kind of like how customers of Tesla are okay if a few weird quirks.

But if a business ever wants to scale, they must become organized. Make no mistake, organization is immensely important and creditors absolutely agree.

Step Two: Prioritize Your Payments

Having written a list of payments due the next step is to prioritize them. In prioritizing the list you are aiming to classify them into three categories:

  1. Business critical payments which have to be made under any circumstances. These are payments which would put your business at risk if not processed
  2. Creditors who would be content with a part payment
  3. Non-critical creditors who could wait and not cause you major disruption if not paid

All payments have a certain priority. Just like how you should pay for your electricity bill before paying for your car payment.

Having a priority plan ensures you’re always putting your money where it’s most appropriate. This also assures that you’re using your money to the best of its ability. It’s working hard for you. And that’s how smart people think.

Step Three: Communicate, Communicate, Communicate

In times of a cash-crunch it’s too easy to ignore the situation you’re in but in not communicating you will only compound the problem. Now you have your list the next step is to get in touch and inform each of them as to what is happening and to communicate your message or request.

Put yourself in your creditor’s shoes; what would you think if you were expecting payments by a certain date and had planned your cash flow position accordingly but no payment was received? Not impressed I guess. So why should it be any different if you are the one delaying payment?

By communicating your intentions you will be preserving and in some instances potentially strengthening relationships with your suppliers. And as many people know, relationships in business are key. The old saying, it’s not what you know it’s who you know — while not entirely true, it makes a good point.

A pro tip is even to communicate during the good times. A little rapport in the good times can go a long ways in the maybe not so great moments. Don’t be manipulative but remember that your creditors are relationships you need to foster just like customer relationships.

Step Four: Check Your Cash Position Frequently

Now you know where you stand you can move ahead more confidently. From now on it’s all about monitoring the cash position in your bank account on a very frequent basis. How frequent is up to you and how you run your business. It could be daily, weekly, monthly, or even quarterly. It all depends.

You are checking to see who has paid you, what checks have cleared and, referring to your payment schedule, which creditors you can pay as per the agreements you have made.

Make sure all your buckets are properly filled.

Once you have made a payment, refer back to step three and communicate… call to tell them their payment is on its way. Continued communication is the key. A note that takes you 10-seconds to type may be enough to keep a creditor happy with you while your money is not quite yet in their pocket.

It’s just like in any sort of financial transaction, communicate is key. Always communicate. This is true when paying your rent, your taxes, your vet bill, everything. People like to stay in the loop.

Follow these steps and you will be in a better position to handle any cash flow crisis you may be experiencing.

Final Thoughts

You have high standards for your business. So getting into messes with creditors shouldn’t be a huge issue. But knowing how to deal with people and money is something everyone is business should be familiar with.

It’s a matter of both offense and defense. The offense is what you’re doing in your business that will keep you in good standing with creditors. Earning money, keeping cash on hand, keeping it within reach to make sure everything gets paid at the right time.

The defense comes in when you need to prove what you’ve done for your creditors. How have you handled a bill? What will you do to keep it from happening again?

Keep creditors happy. They are the golden goose of many.

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William Lipovsky owns the personal finance website First Quarter Finance. His most embarrassing moment was telling a Microsoft executive, "I'll just Google it."

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