With our current economic woes, most businesses are having problems paying their bills on time, if at all.  Over the years I have worked with a wide variety of businesses, all of which at some point have been unable to pay some or even most of their bills.  Some just try to ignore the collection calls (one of the worst things you can do!), some pay bills that they think are more important, just to find out they were wrong, and some just spin their wheels, unsure of what to do.  And in the process, wear a hole in their stomach lining with the constant stress.

Thankfully, there are things you can do to lessen the impact of this outstanding debt on your stomach lining.

1. Realize that managing debt is simply part of running a business.  Even businesses that are in fantastic shape are liable to pay some bills late just due to general cash flow management.
2. Don’t try to shuffle the debt around.  In other words, don’t pay your bills using high interest loans or credit cards.  This may seems like a good short term solution, but instead you will just get further into debt and most likely make the situation much worse than it would have been.   This also goes for those “debt consolidation plans.”
3. Sit down and review all the cash outflows you have and those you know you will have.  This includes bills from vendors, but also includes payroll and taxes.  Figure out how much you owe.  Then figure out how much money you have – how much do you have in the bank?  How much do you estimate will be coming in?  Be as conservative as possible when estimating this number.
4. Figure out which bills you absolutely have to pay to stay in business and on the right side of the law. 

- You must pay the government.  If you do not pay your taxes – payroll, state sales tax, etc. – the government has the ability to levy not only on your business accounts and property, but also your personal accounts and property, even if you are organized as a corporation.  This means you will not be able to pay ANY of your bills.

If you are incapable of paying your taxes, call the appropriate authority (IRS, State Department of Revenue, etc.) and communicate your issues.  They will set up a payment plan.

- You will also need to figure out if your state or, in some cases, your lending agency, requires you to have any specific insurance, such as workers’ compensation, unemployment insurance, vehicle insurance, life insurance, etc.  It is also advisable to keep any kind of liability insurance you may have since if something bad happens, your money issues may increase exponentially if you don’t have some kind of protection. 

- Once you have these concerns addressed, determine how much money you have left to pay the rest of your creditors.  Then call them.  If you don’t tell your creditors you are having cash flow issues, they don’t know.  Communicate as openly and freely as possible.  Explain that you intend to pay, but are having some issues with cash flow and would like to establish a payment plan.  Make sure that the payment plan works for you – do not say that you will pay something that you know you cannot – and keep a record of who you spoke with, first and last name.   Once an agreement is reached, ensure that you have it in writing.

Some of your vendors will not want to work with you.  Whether it is because of their own cash flow issues, or just because they are jerks, it will happen.  In this case, the worst thing they can do is to sue you.  Your legal liability will vary depending on how your business is organized.  If you are a Sole Proprietorship or Partnership, your business and accounts and personal accounts are for all intents and purposes one and the same, so you would be personally liable for all debts.  If you are a Corporation or LLC, your personal assets are generally protected from business creditors, unless you specifically gave up that protection when applying for credit (usually through a personal guarantee). 

No matter your liability, though, those vendors that choose to sue still won’t be able to collect a dime of that suit until you are able to pay.  However, on a positive note, this will you a clear idea of which vendors you will want to work with in the future.  If they truly want your business and are willing to work on payment solutions with you, they definitely deserve your loyalty.  If not, then you likely do not want to provide them more business once you recover.

- If none of these options are available to you, your final (and it should be your FINAL) option is to declare bankruptcy.  Bankruptcy does not mean all the debt miraculously disappears.  If you choose to file for personal or business bankruptcy in an effort to protect your assets from your creditors, not only will you have it on your credit history for 10 years, but if you file Chapter 7 your assets (except for property that is exempt under state or federal law) can be sold off to pay any debt that is not eligible for discharge.  Under Chapter 13 bankruptcy (or Chapter 11 for businesses) you propose a repayment plan for all or part of the debt over the next 3-5 years.  You won’t lose any property this way, but you must repay the debt using your income.

Long story short, you will have to pay back what you owe.  It’s just a matter of if you do it now through working with your creditors or later through paying off high interest loans or loss of your assets and inability to gain funding due to a bankruptcy declaration. Obviously, these recommendations will not work for everyone, and I strongly suggest you discuss your particular concerns with a professional familiar with your specific situation.  However, if you prioritize and communicate, you are far more likely to make it through any economically rough times than if you stick your head in the hole in the ground and pray that any issues resolve themselves.