A strategy for managing business bills

 
A business depends on its cash flow to pay its bills. Cash flow can fluctuate greatly in smaller enterprises and there are often times when payments have to be made selectively. This is a strategy to serve as a general guide for paying bills at any time; it is especially useful for times when extra consideration has to be given to which bills are paid and which are delayed.

Prioritise every bill that comes in when it comes in. Maintain a register of all bills that shows their priority ranking, when they have to be paid, and of course whom to pay and how much is owed. Note how they're to be paid - cash, cheque or electronic transfer. Set up a system that will enable you to see at a glance the bills due to be paid that day and the priority attached to each one.

Pay the most important bills first


Some creditors are more important than others. Those that are essential to carrying on the business have to be at the top of the pile; this is a list of those that are usually deserving of top priority status:
  • Wages

  • Business insurance

  • Rental or mortgage payments on business premises

  • Business vehicle leases

  • Key suppliers

  • Utilities - electricity, water, gas, telephones

  • PAYE and GST

  • Government authorities - licensing and permits

  • Income taxes

Silence isn't golden


Simply not paying the less essential bills is not the right way to deal with them. It leaves your financial position in doubt and could trigger anything from hostile phone calls to collection action. Contact the creditor and explain that you'll be late making payment but that payment will be made by a specific date. Raise the priority level of that payment accordingly and be sure you do make it on time.

Ask each creditor if you can make partial payments for a period of time until your projected cash flow returns to normal levels. See if there might be some way of reducing or eliminating the debt by providing them with goods or services. If your business experiences seasonal cash flow fluctuations - for example, you generally experience a shortfall during the summer - you can negotiate with suppliers that bills will be paid within thirty days most of the year but within ninety days during the summer.

Meeting a temporary cash flow shortage


To meet a temporary cash flow shortage you may want to use one or more of the following strategies:
  • Obtain a loan

  • Arrange for a line of credit from a bank

  • Accelerate the receipt of receivables due to you

  • Bring forward a sale or other cash raising activity

  • Acquire new items of equipment by leasing or other finance means

  • Liquidate investments to raise cash

Contact us

Email results@businessacademy.nz

 

Skype PhilANZ

 

Phone 04 920 0911

 

P.O. Box 30-545, Lower Hutt 5040

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