Managing Small Business Payables During a Crisis

One of the key challenges during a time of crisis can be managing small business payables. Who do you pay and when? Here’s a quick guide on how to proceed.

Challenges are part of running a small business and deciding who to pay and when is always tough. During a crisis, these decisions are even more stressful, and this guide will help you learn how to proceed.

When you run a small business, you’re likely going to pay suppliers, contractors, and a variety of other businesses for their services in addition to paying taxes and any employees you have.

Maintaining good relationships with suppliers is vital at all times and especially during the current health crisis. Supply chains and cash flows are currently feeling the brunt of the pandemic, but this will pass, and eventually, your suppliers, contractors, and fellow businesses will be up and running again. Right now, it’s best to keep your relationships strong to ensure that they remain intact in the future.

Look at your business plan and current cash flow

Before working with suppliers and figuring out how to manage your payables, you’ll need to take a new look at your cash flow. Running new projections is a good idea, as well as looking at your current business plan and any new ones you’re planning during the current crisis. What new issues are likely in the near future, and how will your small business need to react?

What can be done to improve the current cash flow? Are there ways to encourage your current clients to pay their invoices now? Can you offer payment plans to your clients and collect partial amounts now instead of nothing at all? Perhaps you can offer something new and unique to your customers during this time and attract new business. When you make more money, you will be better able to pay your suppliers.

Asking for new payment plans may help

Financially, things may be tight right now, but they may not be so bad later as the crisis dies down. Suppliers are likely to understand this.

Reaching out and asking for a payment plan certainly won’t hurt, and the supplier may be open to the idea so long as they’re not struggling too much. 30-day payment terms may be able to be extended to, say, 90 days which will allow you to spend less money all at once. Other ways to avoid too much spending at one time may be to agree to pay a partial amount of an invoice now and the rest later, or to offer to pay part of what you owe over a period of several months. If your supplier is also suffering from the current crisis, they may be open to receiving a partial payment over nothing at all.

These tactics will work the best when you have a good relationship with your supplier, let them know when the payments will come, and honour your end of the deal. And a payment plan will allow time for cash flow to improve in the near future.

Staying transparent is key

If you’re having trouble paying for supplies, let your supplier know as soon as possible. This will help you both work out a plan. As suppliers must pay employees too, they’ll likely understand that you’ll need to pay your own workers before you address your invoices. Asking for bulk discounts is another useful tactic, especially if you have any long-term projects.

This approach will work the best with those suppliers you’ve had good, long-term relationships with. If a supplier knows that you normally pay on time and will return to them when the current crisis is over, they’ll be far more likely to understand that your small business, like everyone else, is struggling to stay afloat.

Looking at alternatives may also help

Of course, everyone likes to search for the best deals and customer service. There are times when suppliers may be having delays or are shipping products with issues, and if other suppliers are running smoothly, making a switch may help.

Before switching to a new supplier, your small business may benefit from negotiating payment terms with your current one. Many suppliers will be more likely to do this if they’ve shipped products with problems or have been delaying shipments, especially if they’re serious about maintaining relationships with their partners. However, if your supplier won’t or is unable to fix these issues or negotiate acceptable terms, it may be a good idea to look at alternatives.

If your small business is ready to go to the next level and you’re ready to work with an experienced accounting partner, contact us to learn more.

E&E Professional Accountants has years of experience in assisting businesses with their accounting needs. We are founded and managed by an experienced corporate auditor and a former CRA tax auditor. Feel free to contact us for assistance with all your accounting and bookkeeping needs.