Making Late Payments Hurts

This story illustrates what happens when a business avoids taking out a line of credit to pay its contributors and vendors. While you might duck paying interest on the drawn line of credit, it creates problems that could cost much more.

The CFO's decision not to take out a line of credit to cover bills and payroll led to the following...

• Not receiving products and services from vendors.
  • The company spent more money by needing to use express mail to quickly send the check to vendors.
  • Created anxiety for employees trying to get the products and services -- thus increasing the possibility of turnover.
• Paying employees and contractors late.
  • Wasted time in dealing with the complaining (rightfully so) employee or contractor.
  • The company could spend more money paying late payment fees.

In this scenario, the advertisers stopped paying their bills on time. This put the company at a disadvantage. While the company would need to work on making sure advertisers pay on time -- the company could stop the domino effect by taking out a simple line of credit.

A line of credit would lower the company's problems (the only problem would be getting advertisers to pay on time). Employees wouldn't waste time chasing down accounting and mailing the check to the vendor. A line of credit would let them spend this time coming up with creative ideas for the magazine or improving the quality of the work, which would boost the magazine's circulation.

The magazine's actions also hurt its reputation. When photographers and writers get wind of the magazine's inability to pay on time, they won't want to work with the magazine. With many social networks and community-based Web sites -- it doesn't take much for them to find out about companies that don't pay on time.

If the magazine ever hopes to land talented photographers and writers, the magazine needs to get its cash flow under control.