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What to do if you can’t make payroll

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What to do if you can’t make payroll

Updated: March 27th, 2020

What to do if you can’t make payroll

As a business owner, managing your cash flow is one of the most challenging tasks you can undertake, especially if you’re in the process of expanding your operations. Between maintaining inventory, purchasing new equipment, paying suppliers, paying rent and bills, and paying employees, it’s easy to come up short on cash, even if you’re making consistent sales.

Maybe you just made some necessary renovations, for example, or completed a big project and haven’t been paid yet. Whatever the case, if your cash is temporarily tied up and you’re worried you might not make payroll, it’s time to get resourceful.

Try these seven strategies to make sure your employees get paid.

1. Check accounts receivable.

You may have customers or clients who haven’t made their payments yet. If these people are within the payment time frame you specified on your invoice, you can incentivize them to pay quicker. For instance, consider offering a percentage off the amount owed if they fulfill the payment within a certain number of days.

On the other hand, if you have overdue payments, make a call to the appropriate accounting department to collect on your money.

2. Update invoice terms.

Consider updating the terms of payment on future invoices for purchases or services rendered. Shorten the payment timeframe, or offer a discount on their next purchase if they pay quickly. Keep in mind, though, that if you send invoices with new terms to regular clients and customers, they may be surprised — and irritated — by the change. Give them a personal call to notify them and express thanks for their continued business.  

3. Offer discounts to woo new customers.

Review your recent sales calls and records to pinpoint the “almost” customers — the people who haven’t yet committed to buying your goods or services, but who seemed interested. Reach out to these people and offer them a discount or incentive, like a bonus gift or free item, if they commit today. Making quick sales can give you the money you need to make payroll.

4. Talk to your suppliers.

Consider getting in touch with your suppliers to see if they’d be willing to accept a delayed payment. Postponing a regular payment to your suppliers can free up some of your cash flow to give to your employees instead. Of course, approaching suppliers is only smart if you’ve had a successful, long-term working relationship together and can guarantee that you’ll be able to follow through with your payment in a timely manner. This shouldn’t be a long-term solution to cash flow problems.

5. Cut your own compensation.

As a business owner, you’re responsible for ensuring your employees are well taken care of, which means you may need to sacrifice your regular wages to pay your employees first. Consider reducing your pay temporarily or, if you’re able, postpone your entire payment until the following pay period.

6. Take out a loan.

A cash shortage is a good time to consider applying for extra financing. A business loan, for example, can give you a financial cushion and small grace period before you need to start making payments. Instead of scrambling, you can run your business as usual — and pay your employees on time — while you wait for checks to come through or crack down on your cash flow management.

When you need extra money to make payroll or grow your business, look to Funding Circle for help. Our loan application process is simple and fast. Plus, you can get a decision in as little as 24 hours after document submission.

7. Create a plan for the future.

Second only to ensuring your employees get paid, the best thing you can do in this situation is figure out how to avoid a future cash crunch. Set aside time to review your cash flow forecast and determine what you can improve upon going forward. Maybe you need to drop a percentage of monthly profits into an emergency fund, restructure your payment terms, send out invoices faster, set weekly cash flow targets, let go of clients who can’t pay on time, or ramp up your sales efforts. Additionally, take advantage of resources like SCORE, which offers free business consultation and planning advice from savvy financial experts.


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