Managing your business bills can be a juggling act. While ideally you'd pay everything on time, sometimes cash flow doesn't cooperate and you need to miss a deadline. When you're in this situation, it's crucial to know how to prioritize bills between those you absolutely can't miss versus others that have a bit more wiggle room. Here's how to maneuver in this tough situation.
Top Priority Bills
When cash flow is tight, focus on covering these bills before anything else:
Taxes
Payroll, sales and income taxes all should be sent in by their deadlines. If you don't, the IRS and state tax collection agencies could charge penalties and interest, place a lien against your property and garnish your wages. You can even face criminal charges for not covering payroll taxes.
Payroll
If your employees wake up without their money on payday, it's going to be brutal for workplace morale. Even if you catch up soon after, your top workers may already be looking for a more reliable source of income. And some states charge a penalty when businesses are late on payroll.
Secured Debt
Secured debt is backed up with your property, like equipment or a vehicle. If you miss the loan payments, the lender could seize that asset and leave your business unable to operate.
Rent and Utilities
If you miss your utility bills, like for electricity, internet and heat, those services could get shut off, which sure wouldn't help your workplace productivity. And if you rent/lease your space, missing that payment could lead to eviction.
Overdue Debt
The further behind you are on a bill payment, the more damage it does to your credit score. Once you're a few months late, the creditor may also send your account to collections or take you to court. When someone will take these steps depends on the creditor, but the longer you wait the more likely they are to take more serious action. Don't let it get to this point.
If you're about to miss a payment, reach out to your creditors and let them know you're having trouble with your deadlines.
Key Vendors
If you absolutely depend on certain vendors to keep your business running, make them happy by paying their bills on time. Otherwise, they could limit the size of future orders, demand stricter payment terms or cut you off altogether.
Lower Priority Bills
While you should to try pay all your bills on time, the consequences from missing these payments can be less severe.
Invoices That Aren't Late
As you may have seen through running your business, not everyone pays their invoices on time. Missing an invoice deadline won't make a vendor happy, but it happens. And you can minimize the damage by catching up.
Unsecured Loans
When you miss the payment deadline on an unsecured loan, the lender could charge a penalty and interest. But they won't be able to seize your property.
Credit Cards
Missing payments on your business cards will also cost you in penalties and interest, but not your assets. If you catch up on the payment within 30 days, the credit card companies may not report the missed payment to the credit bureaus, which can help preserve your credit score.
Insurance
Your insurance policies may have a grace period, where your coverage stays in-force for several weeks after you miss the payment deadline. If your policy eventually lapses, you'll lose your insurance coverage—which is a risk, but you can sign up again once you have the money.
Other Bills
Professional dues, advertising, entertainment, subscriptions and other miscellaneous expenses are all bills that you can miss or even cut back altogether when you don't have the cash flow.
Payment Solutions and Strategies
Hit at least the minimum payments when possible.
You may not need to pay off your credit cards and loans in full each month. If you can make at least the minimum monthly payment, you'll owe interest but may avoid penalties and damage to your credit score.
Pay Off High-Interest Debt First
As you start paying off your debt, concentrate on the accounts charging the highest interest rate. For the others, consider just making the minimum monthly payment until the high-interest debt has been paid off.
Use Credit Card Benefits
Some business cards offer a 0% introductory period for a year or longer when you sign up. You can use this benefit to pay off your existing debts and make further investments in your business, like covering your next employee retreat.
Consider a Debt Consolidation Loan
If you're having trouble keeping track of all your bills, a debt consolidation loan could help simplify things. You pay off everything with the loan and then just have one monthly payment. The interest rate on the debt consolidation loan could be lower, too, as the lender tries to attract your business.
Watch Out for Personal Liability
Did you personally secure any of your business bills or debts? Missing these payments not only affects your company, it could also hurt your personal credit score. Consider this as you decide on which bills to pay.
Speak With Your Creditors
If you're about to miss a payment, reach out to your creditors and let them know you're having trouble with your deadlines. See what kind of payment solutions they may offer, like an extension of the deadline or a waiver of their penalty because it's your first time paying late. While they still won't be happy about the missed payment, the news will sit better if you warn them ahead of time.
Learning how to prioritize bills is crucial for managing the swings of business cash flow. With this information, you can plan how to cover your bills with limited funds and get out of debt as soon as possible.
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The information contained herein is for generalized informational and educational purposes only and does not constitute investment, financial, tax, legal or other professional advice on any subject matter. THIS IS NOT A SUBSTITUTE FOR PROFESSIONAL BUSINESS ADVICE. Therefore, seek such advice in connection with any specific situation, as necessary. The views and opinions of third parties expressed herein represent the opinion of the author, speaker or participant (as the case may be) and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions. American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any such opinion, advice or statement made herein.
