Who Gets Paid When Money Is Short?

Who Gets Paid When Money Is Short?

In tough times, everyone needs to tighten their belt. Customers try different ways of paying you back and all at once too! You have a small window for collecting the cash from your customers but still need to pay off other people. How do you decide who gets paid first? The one with unpaid bills or someone that’s been loyal enough to put up with waiting in line each month during these rough days?

MAS*H takes in wounded patients a lesson for how to take care of business when times are tough.

When the helicopters bring in incoming wounds, they always pay particular attention to those who have injuries which need immediate treatment. But what if you’re just getting by every day? You can’t afford having some bills unpaid because it’ll put your whole company at risk, The doctors had to perform “triage” by separating the wounded soldiers into three groups: those who must be treated immediately, those who can wait a little while for treatment and those who are beyond hope. Doctors divide patients according to urgency of care; an immediate need is someone with life-threatening injuries or bleeding that cannot stop on its own; less urgent needs include fractures without nerve injury (broken bones) and sprains/strain (a stretch or tear in muscles).

Businesses cannot afford to dole out all their money in a timely fashion. Instead, they triage payments by dividing them into three piles: those that will be paid on time even if it means you have not enough funds; those that can wait until the next revenue or without any apology from your company for late payment; and lastly, bills which are only going to get paid when business is booming again.

Here are some suggestions:

Pile 1: People Who Get Paid on Time

  • Creditors who are critical to your business’s survival. If you are a newsletter publisher, the people who print your newsletter are paid on time, even if you have to use your credit cards to do it. If you do not pay your printers, they will keep your newest edition and you will not be able to make money.
  • Key personnel or contractors If your business makes the majority of its sales over the Internet, the person who maintains your person up to date and puts it back up when it crashes is “mission crucial” to your success. So pay them.
  • People who can easily sue you or make your life difficult legally. That so-called “independent contractor” who works 60 hours a week for you, does not work for anyone else, has his dental bills paid by you, and has a cubicle, computer, and secretary in your business office can cause you a lot of trouble if he ever tells the IRS that he was your employee and you never withheld payroll taxes.
  • Debts for which you have personally guaranteed repayment. For example, most small-business credit cards are personally guaranteed by the business owner. If you do not make at least the minimal payment each month, they can place a lien on your home, your Elvis Presley memorabilia collection, your children’s college money, and your jewels.
  • Your attorneys and accountants.
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Pile 2: People Who Can Wait

  • People who scream and yell a lot. Creditors who understand they are towards the bottom of your priority pile will frequently yell and scream for their money, thinking you would pay them off just to get rid of them and prevent additional annoyance. This is a highly successful technique, especially when the stakes are low. If you have any money left over after dealing with pile 1, get rid of the screamers. You will live a longer life.
  • People who have traditionally waited for their money. You are not required to pay an invoice if it states “payable net 30 days.” As a matter of routine, many creditors will wait 45 to 60 days before making any payment demand. Allow them to wait like they have in the past.
  • People who have not yet requested payment. In general, people cannot sue to recover debts unless they first send you a “demand letter” or “4-F letter” (4-F is attorneys’ shorthand for “Fee-Fi-Fo-Fum,” as in “the Giant is awake and is finally coming to get you, slow and lumbering though he may be”). If you owe someone money and haven’t yet gotten a demand letter, you may rest easy for the time being. If you get a demand letter from a law firm in a distant state where your business has no assets or legal presence (such as an office), you can still disregard it since courts in your home state frequently will not accept a “default judgment” made against you in another state. When you receive a demand letter from the largest law firm in your area threatening to place a lien on your property, transfer the bill to pile 1.

Pile 3: People Who Don’t Get Paid…Ever

  • Everyone who isn’t in either pile 1 or 2.
  • People who are not legally required to be paid. Who is to say that if someone conducts work for you and there is no written agreement as to payment (or verbal agreement with witnesses), the work wasn’t a gift? Shame on the contractor or supplier that does not insist on a written agreement before doing business with you.
  • People you can live without. If you own a dental office and your membership to one of your waiting-room publications is about to expire, it’s absolutely fine to cancel. Get rid of as many contractual obligations as possible and concentrate on the few really important connections to your business’s success.

You know you’re going through a rough patch when creditors are calling in. It’s just not easy to deal with, and often painful too. But the key is remembering that it can be worse if you were crueler to your customers than they were kind to them – after all, without loyal consumers who spend on our goods or services every day we wouldn’t have much of anything.

One more thing, if creditors start harassing you by calling you at home every night after 10 p.m., leaving X-rated messages on your voice mail, or threatening to throw you in jail for failing to pay your debts they may be violating the federal Fair Debt Collection Act. Talk with a lawyer about this statute and make sure that they are compensated so as not to break any laws themselves.