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Basic Money Shortage Solutions

If you are starting out undercapitalized, like most small businesses do, and if you have big growth plans, you are sooner or later going to run out of money. How severe a cash shortfall you have will be dependent on how early you realize that you have a problem, and on how rapidly and aggressively you work to correct it. This article focuses on the most effective steps that you can take during a cash crunch.

Speeding inflow

The first area that can be adjusted during a cash crunch is cash inflow. Look at all of the receivables owed to you. Determine whether or not there is some means by which you can receive payments earlier than anticipated.

Get on the phone. Use your most upbeat tone, and try a little honesty, such as "We're a little tight on cash right now, and I would greatly appreciate it if you could pay us now." If necessary, offer small discounts for faster payments or larger discounts for prepayments.

Slowing outflow

Decide how serious your situation is. Then decide which bills you must pay. Remember, very few businesses of any size pay their bills within the stated terms.

If you owe a particularly large amount of money to one key supplier, be cautious. If you intend to pay some of the bills significantly late, advise it of this in advance. If you are fairly certain as to when you will be sending payment, offer this information as a promise in exchange for continued credit on new purchases.

Crucial creditors

Make sure that you decide who gets paid and when, not your creditors. Pay those creditors that are most important to the continuation of your normal business operations first.

Some creditors may threaten to take further action, to turn your account over to a collection agency, or sue you. Don't panic. If your account is turned over to a collection agency, this will be the least of your worries. If a creditor does take you to court, the hearing date will be months ahead.

If you don't know when you will be able to pay a bill, don't let a creditor push you into making a payment promise. Instead, tell creditors that you have placed them on your payment list. Assure them that you haven't forgotten about them. Let them know they will be paid as soon as possible, but you can't say when exactly that will be.

Noncrucial creditors

Don't forget about noncrucial suppliers, but pay these vendors only when you have the extra funds. Again, as you did with crucial creditors, prioritize and pay those suppliers whose continued services or goods are most important to the maintenance of your business.

By Source Streetwise Small Business Start-Up


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