Understanding the Problem Situations

There are times that we run into major cash flow problems. This can occur when your income is more than your expense or may be your income is more but your actual cash collections are less than actual payables. This generally happens when we look at revenues and expenses over a longer period, a month a quarter or even a year. We have to map cash flow on a weekly/daily basis and then schedule the expenses within that. A company’s cash flow on a daily basis must be positive.

The Logical Next Steps

When we run into a situation of negative cash flow we tend to borrow if we can, as bridge financing option or hold back payment. I am going to address the situation when we have to hold back payment. In this situation one has to do a daily cash mapping, cash coming in and cash that has to go out and the resultant daily cash position.  From this one should then do a cash payment plan account by account. Once this is done it should be communicated to the parties so that they know that their money is safe.

What, if one is not sure of the cash income?  Most CEOs tend to pass on  to the accounts or purchasing to deal with the creditors and  they duck.  They  do not pick their calls or respond to their mails and definitely no question of face to face. They are always tense, trying to duck and avoid. The creditors are very upset with the company as they do not know about fate of their dues. Those that can afford to , will write off not only the amount , but the company as well. The others will bad mouth and spread stories about your doom. So in a market where are you already in trouble, rumors about your company closing down makes it even tougher to survive.

Personal Experience

 I ran into such a situation in one of the companies I was trying to turn around. We had exhausted all avenues of borrowing.

The salaries, rents and vendor payments were all stuck for months. Employees were leaving, landlords had given eviction notices and vendors had stopped supplies. My predecessor on the job refused to meet or talk to any of these parties. This is when I walked in as CEO.

We sat down and drew up a six months month by month plan and the resultant weekly cash flow party wise.

Recommended Approach

Instead of ducking and hiding and getting my BP up I decided to face it head on. I called a town house meeting and told the employees that we have a massive cash flow problem and these are the steps we are taking and together we will fix it. In the interim the salaries will be delayed but all will get the backlog. I met all the A and B category   suppliers and told them the same thing. I requested their cooperation in keeping the supply line open. They were impressed by the openness and all came on board.  In six months we were able to clear the outstanding and a great reputation.

My friend Raghu was undergoing a similar cash flow problem and could not pay his rent. He would spend a lot of time and energy trying to duck the landlord. This was affecting his sleep and general focus. So one night, when could not sleep ,he went up to his land lord and told him his problem and that he could not pay and left before the land lord could react. He said that night he had a wonderful sleep. Perhaps his landlord lost his.                                

Mr. Veer Sagar, Chairman, AOE

Mr. Veer Sagar, Chairman, AOEMr. Veer Sagar consults and advises companies on general management, business development, cost and process management, objective creation and company positioning. Has over 48 years of general management experience in India with a particular focus on marketing and on the information technology and manufacturing sector. Currently is the chairman of Selectronic. Selectronic is one of India's earlier BPO operations.


  • October 06, 2015
  • Association Entrepreneurs
Write a Comment
  • October 07, 2015
  • Naresh Vij

Thank you Veer to pass on wisdom of many years you have accumulated. As an entrepreneur, I have faced similar situations time and again. My “Mantra” has been clear cut and truthful “Communication” at all four directions. Keep “Communication Lines” open and see the magic happening pulling you out of tough situations.

One of my buyer used to write PS on every mail " Please ask like a child and do not hesitate to communicate" I will not make fun of you but this act of yours will help both of us in giving quality work in time.

Happy entrepreneurship.

Best Regards
Naresh Vij