A business can show a profit every month and still miss payroll. It happens when money is owed to you faster than it is paid to you, and it happens most often to businesses that are growing. More sales means more stock bought in advance, more wages paid before invoices clear, and a bigger gap to bridge every month.
Know your cash conversion cycle
Count the days between paying for what you sell and receiving payment for it. For a retailer buying stock on thirty-day terms and selling for cash, the cycle can be negative, which is wonderful. For a contractor paying wages weekly and invoicing at month end on forty-five day terms, it can be seventy-five days. Every day in that cycle has to be funded by someone.
Invoice on the day, not at month end
Batching invoices to the end of the month adds an average of fifteen days to every payment. Invoice the day the work is delivered. Modern accounting tools make this a two-minute task.
Shorten terms and say so
Terms of fourteen days are normal for small services. State them on the quote, the invoice and the reminder. Offer a small discount for payment within seven days if your margin allows it; it is cheaper than an overdraft.
Chase early and politely
A friendly reminder on day one after the due date collects more than a stern letter on day thirty. Automate it.
Keep a thirteen-week forecast
One spreadsheet, thirteen columns, expected money in and out each week. Update it every Monday. It shows the tight week six weeks ahead, which is enough time to do something about it.
Separate growth cash from operating cash
Stock for a big order or deposits for new equipment should come from a planned reserve or an agreed facility, never from the money earmarked for next month’s wages.
None of this is complicated. It is simply done consistently by the businesses that survive their own growth.