How to navigate vendors during tough cash flow stretches
Many startups at one point or another get into situations where they need to stretch vendor payments a bit to handle cash flow issues. We're in one of those situations right now and I'm trying to figure out the best way to deal with the situation. Obviously every vendor is different and some have yet to complain about outstanding money that we owe them while at least one is threatening legal action and sending our outstanding amount to collections.
Has anyone here dealt with this and were there any lessons learned? I don't like not paying people on time (out of principle) but on the other hand, we're in a position where if we don't there's some concern whether we'll be able to stay in business or not.
Thoughts?
2 Answers
The most important thing you can do is communicate your situation to them. Give them a heads up if you will have issues paying them. Don't wait till the last minute or hide from their phone calls. Most vendors will work with you to resolve any issues as long as you are open and honest with them.
You do have to be sincere in your desire to pay them eventually. Partial payments also work since when they sell the debt to collection, they get 10's of cents on the dollar. If you offer to give them a partial payment now, that can be a lot more than what they will get from collection companies.
Again, be honest about your situation, assure them you want to pay them and offer, if you can, a partial payment to show them you are serious making stuff work.
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+1 on communicating. We're on the receiving end of several of these issues these days and it stinks when people try to stonewall us instead of just talking to us and explaining their situation. Waste a lot of our time in addition to not paying us. – Dane 15 years ago
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Sometimes, I think it's a pride thing. No one wants to admit they are struggling. The funny thing is, if you are honest with people about your hardship, most will work with you. – Jarie Bolander 15 years ago
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Jarie is right on the open + honest communication. Let them know. It's painful and embarassing, but if you're stretching anyway then they probably already suspect. being honest with them also gives you the chance to build a much stronger relationship with them (which will help you out down the road). Also, if a vendor isn't willing to work with you to solve the situation, then it's worth reconsidering if you want to continue working with them in the future (i.e. this is a good chance to filter/review your vendors). – Joseph Fung 15 years ago
