Why Business Owners Should Never Pay Bills On Time
In the New York Times Best Seller, “Profits Aren’t Everything, They’re The Only Thing,” American Management Services founder, George Cloutier, made the bold statement “Never pay your bills on time!” This is why.
A few years ago, in the New York Times Best Seller, “Profits Aren’t Everything, They’re the Only Thing,” George Cloutier, the founder and CEO of American Management Services, gave some rather unconventional business management advice: “Never pay your bills on time!”
Admitting that this was a concept that his finance professors would have either given him an A or F for suggesting, his unconventional wisdom was not meant to promote shady business tactics like taking advantage of your vendors, but rather working with them to establish a smart use of cash flow to promote stability.
“Not paying your bills on time” means using your vendors and landlords as a reliable source of interest-free cash, by consciously stretching out your payments in an orderly manner. It involves having real and honest vendor negotiations, and setting realistic payment terms, giving you the opportunity to increase your cash-on-hand, and avoid the struggle of running your business just to pay vendors.
Several years ago, we were working with a plumbing contractor who had become enslaved to their vendors. Although they were generating $7 million per year in sales, they had no cash-on-hand, and no room in their line of credit. After reducing their overhead, we prioritized their vendors as A, B, and C, and with very little argument we managed to turn A-vendor payables into 12-month interest free accounts, B-vendors into 18 month, and C-vendors into 24 month. This made a massive impact on their cash-on-hand, generating hundreds of thousands of dollars of liquidity at no cost, all because necessity mandated it.
On the flip-side, we are currently working with a client who runs a machine shop, doing in-excess of $20 million per-year. They have a very strong cash position, so with all the charm of a baseball bat, we were able to convince 7 of the 10 vendors to increase the cash discounts they were offering from 2% to 5%, saving over $180,000 per year.
In my experience, if you’re cash poor, you should force vendors to work with you more, and if you’re cash rich, force them to give you more! By “Not paying your vendors,” you’re positioning your business to have the financial resources to not only grow, but also achieve cash-stability.