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When Cash Is Tight, Who Gets Paid?

A simple guide to prioritizing your payments when the bills are piling up beyond control
March 25, 2002

Editor's Note: Starting this week, small-business expert and attorney Cliff Ennico will be contributing to this column on a regular basis. His practical advice is a welcome addition to this weekly resource.

In tough times, cash gets tight. Customers stretch their payments, or stop paying altogether, or try to renegotiate their deals with you. Meanwhile, you have to make payments to other people. There is usually enough money in the checking account each month to pay some of your obligations, but not nearly all. How do you decide who gets paid, who waits for payment and who doesn't get paid at all?

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Debt eating away at you? Keep your cool by " Keeping Your Shirt From Creditors. "

Make no mistake about it: In flush times, you want to pay everybody on time, but in bad times, this simply isn't possible. Remember the medics on M*A*S*H? When the helicopters brought in the incoming wounded, the doctors had to perform "triage" by separating the wounded soldiers into three groups: those who must be treated immediately, those who can wait a little while for treatment and those who are beyond treatment and must be left to die ("triage" simply means "to divide into three parts").

In business, "triage" means you take all your bills and divide them into three piles. The first pile gets paid on time, even if you have to hit up your credit lines to do it; the second pile gets paid as late as possible, with or without a personal apology to the creditor for the late payment; the third pile gets paid when you win the lottery.

Here are some suggestions:

Pile 1: People Who Get Paid on Time

Pile 2: People Who Can Wait

Pile 3: People Who Don't Get Paid...Ever

Dealing with frustrated creditors is never easy, and often painful. When money is tight, however, it is important to remember that by being "cruel" to some people, you are being "kind" to others. Better to be cruel to creditors who don't add daily value to your business and kind to those that do than the other way around.

One more thing: if creditors start harassing you by calling you at home every night after 10 p.m. or before 8 a.m., leaving X-rated messages on your voice mail, or threatening to throw you in jail for failing to pay your debts, they may be violating the federal Fair Debt Collection Act. Talk to your lawyers about that statute, and make sure you pay them for their time!