Most B2B are on 30/60/90 day payment terms anyway. You should be able to get your shit together in 30days without delaying any payments.

The more prudent thing would be to scrap all subscriptions/SAAS solutions you can live without, with one month notice where you are not contracted, where you are see how to activate any break-clauses etc.

So this month you pay the same but maybe next month you cancelled some nine essential stuff and your burn rate is 1-10% leaner? shrug

> Is the author suggesting screwing over the companies you buy services from by not paying them?

In a bankruptcy or restructuring someone is going to get screwed. That’s sort of the definition of it.

Usually that happens undet proper bancruptcy proceeding (Chapter 11 or some variety of that depending on jurisdiction).

Yes. As hard and unfair as it sounds, if you have finite resources and too many expenses, at some point you have to take drastic decisions.

The big difference is in how you handle them "in a couple of weeks". You can totally screw them, or you can honor their credits.

How do you know you will actually have money in a couple weeks?

If you wouldn't have money in a couple of weeks, how does this make any difference?

Delaying bacruptcy can, and has, landed people in jail.

It may not to you, but your unpaid vendors would know to not wait on you hoping you'll pay up at the end & try to figure out a backup.

If I was providing services to a company I'd much prefer they tell me they're unable to pay ASAP then just delay as much as they can and then not pay at the end.

Doing so ruins a companies financial crediability, and it is opening thr door for your vendors to sue you for delaying bancruptcy. You can ask for drlayed payments as part of restructuring, unilaterally stopping payment is a sure way to disaster.

Just keep them in the loop so you don't end up with a nasty surprise of your own. I have dealt with this scenario from both sides, and suppliers are often pretty well situated to ride out a few missed payments. But by the nature of your situation, you are in no position to be shopping around for a new service should they cut you off for non-payment. Keep people on your side by being communicative as early as possible.

Either you default or you honor your credit and potentially rebalance credit. I your business was operated responsibly you shouldn’t be in a situation where you stop all payments to „sort out your business numbers“

Whether or not your business was operated responsibly does not affect your current best marginal decision. Assuming you want your business to survive, this may be to take the author's advice.

Ahem. You also cannot delay filing of insolvency because the law decides which marginal decision are allowed and which aren’t.

Yep. and 2 weeks delay in payment is not 'totally screwing' anybody :-)

The freelance contractors at the start/scale-up where I previously worked did not get payed for 5 months (some even 9 months). Only after Series A completed did they get their bills paid.

Wow, this is shocking... I guess they had other customers who were paying them so they could afford to keep betting for 9 months? I would have to stop providing services to customer who would not pay one invoice, but I'm probably too junior to judge.

Having actually worked as a financial advisor in “restructurings” aka bankruptcies, many (most?) of the comments in this sub thread are not correct. Pre-petition, post-petition and restricted payments (say management bonuses a few weeks before bankruptcies which are ellgibile for claw back) are treated differently. There is a strict order of preference (priority) which can be found in the bankruptcy code. Generally, employee wages are sacrosanct. What ends up happening with vendors is the following: “hey guys everything pre petition is washed, but here’s 2 cents on the dollar for your claim, AND the bankruptcy court has allowed us to use cash collateral to keep using you, soooooo, since it’s a sunk cost, how about you keep servicing us? And when we emerge the bk court requires a test of financial validation to our plans so you’ll know for sure we’re safe. “. As unfair as that is, many/most vendors take the deal. A large vendor will have a certain small %age of their customers go bk every year so they’re generally sophisticated and know how to play the game. Same for landlords. Also the unsecured creditors have a committee through which they voice their concerns. Further, if you play games and try to not sign the bk papers as a debtor, 7 creditors can band together and force you in, which doesn’t usually happen because of the game theory around that. But basically, as a general rule, don’t fuck around.

Your scenario as described is unethical, and a virtuous investor would have topped up those delinquent payments with some premium since those employees essentially funded the company with financing. In a bk, you also have access (I won’t explain this) to debtor in possession financing which is super senior to everything except basically tax liens iirc, and if there’s a working capital deficit like the wages mentioned in your case, those can be resolved.

The courts are very very strict on the bright line on pre and post petition spend and liabilities and shenanigans aren’t really tolerated. Also, the “zone of insolvency” brings significant liability to officers and directors of the company, and D&O insurance won’t always protect you against risk of this magnitude, so it’s best to steer far far away from unseemly behavior in any liquidity constrained situation. Those refs bite, and they bite hard.

Sorry you had to go through that.

Yeah, most (some?) suppliers and vendors will take the deal. It does show two things so, first those vendors of a bankcrupt start-up are actually much more sustainable, and grown up, businesses than the start-up. And two, one has to negotiate those deals with suppliers, good simply defaulting on a couple of invoices without as much as shrugg emoji in the lead up to an actual bankcruptcy proceeding.

> Is the author suggesting screwing over the companies you buy services from by not paying them?

Some companies play this game all the time - I’ve even heard it referred to as “supplier stretch”.

They pay eventually, but late to improve cash flow. The flip side is when they come to renegotiate their contract, you take late payment into account in the new offer, and they have hurt the relationship, so it’s not a particularly long term strategy (and once you have started, it can be hard to pull back to a position where you aren’t late for everything depending on cash flow).

Some companies do it intentionally. Some do it out of sheer incompetence in the procurement and accounts payable departments / processes. Personally, I almost prefer the first option, it is somewhat easier to recover from.

You also don't get to dictate the suppliers response to stretching them. If you keep stretching me, one day I'm going to be fed up and not send a shipment until you've paid. If you're truly running it tight like many are, you may have been relying on selling that stock to pay for it, shoot that's a bad spot to be in.

As I've said in other comments though, keep people in the loop and you'll have a much better time. Communicate first and make decisions based on the outcomes of that. Maybe the outcomes the same, and you don't get sent the goods, that's fine at least you know ahead of time and can react.

> They pay eventually, but late to improve cash flow.

I‘ve never understood this. If you stretch creditors out to say 120 days, then you only gain the difference in value between the amount owed today vs the same amount in 4 months, which is next to nothing. Once you’ve stretched a creditor to their limit, your payments occur at the same frequency as they would if you didn’t stretch them. So it provides a very marginal one-time benefit, at the cost of pissing off companies you need.

I mean, stretching creditors will make your bank balance look fatter, but it doesn’t mean anything because the trade creditor liabilities will remain on your balance sheet, and it’s your balance sheet that counts. Of course, it might be desirable to have cash in the bank if you’re sailing close to the wind, but you’ll be sailing close to the wind when those debts become past due, too.

Cash flow is differwnt from overall profit and loss. Stretchibg payment terms doesn't help you with the latter, it certainly does with the former. Assume you get your money from clients faster than you pay your suppliers, something quite common in retail.

One can be profitable and cash positive (best place to be in), cash positive and unprofitable (acceptable, especially for growth-focused businesses), cash negative and profitable (kind of ok-ish assuming some reliable backing by banks to cover any cash constraints) or cash negative and unprofitable (the by default dead category, excluding VC money I have the feelong a lot start and scale ups fall in this category at the moment).

It’s about cash flow - plenty of fundamentally profitable companies go bust because of short-term cash flow issues, so if you can give yourself an extra two months leeway from a financial perspective that can be huge for survival.

Another simple way to look at it: If I am buying 10,000 widgets for £80 each and expect to sell them for £100 across the next three months, I either need to have £80,000 sitting in the bank that I then tie-up in phones, or I agree to pay £80,000 in three months (maybe it is then £85,000 due to credit terms) but then I can sell the phones before I buy them.

It’s a minor example, but if you imagine you are a growing retailer and employ this strategy you can grow much faster than another retailer who doesn’t (and has to tie their cash up in stock).

Above examples are very simplistic because it’s about stock, but same logic can be applied to other purchases - most cash spend a business makes should presumably deliver some sort of value, so paying later allows some of the value to be realised before payment is required.

This is why cash flow is king.

Yep this makes sense, thanks. My background is SaaS services where you have long term contracts payable monthly. I don’t think there is a clear cash flow benefit in that case, for the reasons I gave. But I totally get it for your example. It’s a kind of leverage, right? Effectively using your suppliers as a loan facility.

What I've done to avoid being put in this situation is put in intentionally punitive late payment terms (16% + base rate AER calculated monthly), and then hold customers to it if they start to play this game. This is double the statutory rate and if they're being really arsie I start adding on "reasonable cost" charges every time I have to chase an invoice. This works because every month (or even more freqently) they get a credit note for the old invoice and a new invoice with the interest and chasing fee added. This costs money not just in the added interest etc., but also in time. The way I figure it, the payment terms on my invoices are 30 days. The "real" payment terms (before I start doing the above) are 60 days. If you haven't paid by then, you're either incompetent, insolvent, or in danger of becoming so.

It's also b2b. It's not exactly uncommon for payment to end up weeks or months late (industry depending).

I am suggesting that if your company is on track to DIE, then your utmost duty is to save YOUR company.