We all know growing a business costs money.  What I didn’t realize is that as a business grows it eventually has to pay to get money.  This would have sounded crazy to me a few years ago.  Why can’t I just send out an invoice and wait for the check to arrive? Simply put, because you never know when those checks will arrive but you do know that payroll will be due regardless!

It’s crazy how long clients will try to delay paying us. While it was tolerable in the beginning when receivables were just ten thousand dollars a month those numbers have jumped into the hundreds of thousands of dollars per month and somewhat predictably – bills have grown proportionately.  Getting larger clients has been a learning lesson.  The smaller clients don’t have payroll directly tied to them but when a large client (5% or more of revenue) pays late well guess what – you have staff that are being paid regardless if they have paid on time.  And when that client doesn’t pay on time, and we know that most won’t, you have to take money out of the savings account to fund payroll.

In the first 3 years of CWS, it was no problem to float the receivables but the volume of dollars needed to pay the Cardinals has ballooned to where our savings cash doesn’t make sense to use. We are now on a twice a month scramble trying to figure out how to pay our bills.   The Cardinals are a really fun loving bunch of young folks, but I imagine we would have mutiny on our hands if they didn’t get their direct deposits on time.

What Are My Options?

Since delaying paying these youngry (young + hungry) folks wasn’t an option, we had to turn to the possibility of putting more clients on recurring credit card payments to get cash quicker and/or turn to a line of credit.  I had always read in business magazines that a CEO should get a line of credit before they need it but did I follow this advice – NO. Realizing two months ago that Cardinal was quickly running out of cash even though our P&L looked fantastic, I scrambled to meet with bankers.

Deciding to pay around 3% on credit card fees or 7% APR on a line of credit didn’t feel really good.  Somehow, it feels like someone is screwing you when you have to pay money just to receive the money your company worked so hard for. Rather than take out our frustrations on our clients as their delinquency is what is causing this need, we decided to funnel our energy towards minimizing the impact this would have on our bottom line.  We have partnered with a great CPA firm and I am also going to bring in a more day to day financial analyst to keep an eye on our books.

Diversifying payment options

To date, I have made the decision to have 25% of receivables on credit card with the rest (75%) paying by check and then move funds over from the LOC when needed to cover payroll or big expenses.

Truth be told, I am not sure how this will fare long term.  As we get larger clients, we will need more than our LOC can provide so we may look into credit lines based on factoring which is basically getting credit on the amount of future receivables due.  Not a huge difference from a standard LOC but it costs a bit more.

Lesson Learned

As Cardinal grows and hopefully will go from hundreds of thousands of dollars a month in receivables to one day millions in receivables I now know that hiding from the brutal truth that numbers provide is the best way go out of business.

One piece of fantastic advice I received along the way from a mentor of mine – Larry Hart: “Most businesses don’t fail because they run out of new customers, they fail because they run out of money to fund their growth”.  How true that has proven to be.

To get a little taste of retribution for this hardship, we now pay all of our vendors as late as we can. But please don’t tell them, they may ask us to pay with our line of credit.