One of the toughest challenges to deal with on your accounts payable list is when you have a lot more that is due than what you have money in the bank account. How do you slice up the pie then?

I’ve been in some situations like that where the cash was tight until we had turned the company around, but I think some of the actions that we showed and how we handled ourselves during the tight times helped us as we climbed out of the hole and got back on our feet. I think that behavior helped us to move along much faster.

Here are some ideas from my past experiences:

1. If you’re new with the company, use that as a time to get breathing room. The information you have might not be correct. Very often, there can be bills that you are missing that don’t show up on the sheet. You can buy some time, but you don’t need to buy a lot to get the picture straight. I would talk with the various major vendors and ask them to send me their balances, so I could make sure our records’ in agreement. I’d explain to him that I’m working out a payment plan, but wanted to make sure I had the proper information to start with.

2. Create the payment plan. It’s not a situation where you want to go at it ad hoc each week and kind of in selecting the squeaky wheel or the flavor of the day. You want to set out a game plan and figure out something that you could handle. You want to have a little buffer in there if you can in case collections don’t quite come in as strong as you hoped or should there be an unexpected expense or two that pops in. You also want to leave room for current expenses coming up.

3. Be ready to mix the old and the new. I thought it worked best to have a plan where the old stuff was stretched out over an extended period, but then new bills would be taken care of promptly. That way we could be working out of the hole because the old would widdle down, but meanwhile the new would not build up the old balances.

4. Schedule out partial payments. Get partial payments going out to various suppliers, so that way they can keep seeing some action. Get some going out to a lot of people, rather than a little bit to some one week and then a little bit to others the next week.

5. See what you can do about the small ones. Take a look at the smallest ones. Are the amounts pretty immaterial? Consider just getting some of them just paid off and cut down the list through a smaller number of vendors. It can save you a lot of time in a period when time is at a real premium.

6. Consider if there’s other sources of cash that can be brought in to accelerate the plan. Is there some investor money, such as through a loan or so, that could be brought in? It helps if you have the plan put together to make the case for them. Then with their money in place you have more to talk about with the various suppliers.

7. In other words, things come in where you have no breathing room. Try as you might, there’s going to be something that may be non-negotiable, like some utility bills or taxes. Factor them in, there probably isn’t going to be much you can do there.

8. Communicate the plan to the suppliers. Communicate the plan for each of your suppliers that you have for them individually. Let them know that you have a goal. Give them a target that they can use to monitor and hold you accountable.

9. Monitor your progress against the plan. See how you’re doing from a macro view and if it’s not working out take action at a higher level.

Those are some thoughts for when cash isn’t going to be enough to cover the pie. Rather than doing it at hock, follow some of these steps. Come out with a coordinated plan and you might find yourself getting out of the hole much sooner.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
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