Subscribe to Blog ContentA business that chooses to pay its employees and vendors late instead of taking out a line of credit to get the needed cash flow will experience more problems as opposed to avoiding interest by not taking out a line of credit. Not taking out a line of credit for paying bills and making payroll causes the following problems:
- Vendors won't deliver products and services or they deliver it very late.
- To get its products or services faster, the company could use expensive means for expressing the money to the vendors. This is adding to the cost.
- Employees needing the product or service grow frustrated and more stressed because they can't do anything. This leads to higher turnover rates and a drop in employee morale.
- Making late payments to employees and contractors.
- Employees and contractors will complain about the late payment. They have bills to pay, too. As a result, management has to deal with the complaints. This is wasted time.
- If late payment fees are involved, that's another added cost to the company.
Solving the Late Payment Problem
One company had many unpaid invoices that put it at a disadvantage and at the mercy of the companies who make up the bulk of the income. Not only does the company need to chase down accounts receivables and resolving the late payment problem, but it could put a stop to this mess with a line of credit or selling its accounts receivables to a factor (a company that buys the invoices at a discounted price).
Improve Cash Flow, Reputation and Happiness
Selling the invoices or getting a line of credit would cut down the number of problems on the company's hands. Employees won't spend productive time trying to find out why the company hasn't given them their paychecks. Vendors and contractors will stop bothering management as they request payment on their own invoices. With a line of credit or factoring, the company can make most of the problems go away and have more time to focus on moneymaking activities. Since employees are passionate—at least they tend to be when it comes to the core business—morale would improve.
Not only that, but the company's reputation would also get better. Right now, it has a reputation of not paying its employees and vendors. It doesn't take much for a disgruntled employee or vendor to tell someone and for the news to spread to others who won't want to work with or for the company.
If the company wants to stay strong, keep its best employees and improve its relationships with vendors, then it needs to find a better way to manage cash flow.
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