As reported on Inc.com:
Few events are more common, and potentially more devastating to a business, than cash flow problems. It doesn’t really matter if they’re the result of low sales, a bad economy, or a market misstep. If you want your business to survive, you’ve got to see it through while taking as little damage as possible.
Unfortunately, many business owners (and even their accountants) treat a lack of cash flow in their business like a typical consumer treats an inability to pay the monthly bills. They separate creditors into two categories–essential and non-essential–and then ghost those deemed non-essential.
While this approach buys you time to get back on your feet, it also destroys your credibility with the vendors and contractors that you’ll need once your cash flow gets better. Your business reputation isn’t as easily measured as consumer credit scores, but it’s just as real, and a bad reputation can linger as long or longer than a bad credit score.
What damages your reputation, however, isn’t the fact that you’ve come up short for the month; it happens to many and probably most startups, especially in the early stages. It’s also happened to plenty of larger firms. The damage doesn’t even come from not paying in full when that payment is due.
The damage to your credibility occurs when you ghost your suppliers and leave them hanging, because the moment you do that, in the eyes of the people on whom your future business depends, you’re transformed from a “company with a temporary problem” into a “rude as hell deadbeat.”
Think about the message you’re sending when you ghost somebody to whom you owe money.
First, you’re implying that they’re too stupid to notice that you haven’t paid them. Believe me, even if you don’t get a daily “where’s my money” email, when you pay late, and especially when don’t pay at all, I guarantee you that it’s been noticed.
Second, you’re risking having your supply cut off. While in your mind, you may understand that you’re just having a cash-flow hiccup, in the mind of somebody who hasn’t been paid is probably thinking you’re about to go belly-up.
Third, you’re telling your supplier that you don’t trust them enough to explain what’s going on while simultaneously asking them to trust you that they’ll eventually be paid.
While there’s no easy solution to a cash flow problem, it’s easy to mitigate the potential damage it might wreak to your business reputation and partner relationships. How? Simple. You’ve got to be honest with them. Rather than leaving your suppliers in the dark, let them know when you expect that they’ll be paid and, if possible, arrange for some partial payment ASAP.
If you’ve maintained a positive relationship with your suppliers in the past and haven’t given them reason to mistrust you, they’ll adjust their expectations and remain as flexible as they can. But if you stiff them and ghost them, they’ll never trust you again, even after you’ve paid in full.
Author: Geoffrey James
Date: 2020 05 30
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