Late paychecks: How to survive the scariest payroll horror story

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What’s the scariest thing that’s ever happened to you at work? Maybe you’ve dealt with your fair share of nightmarish clients. Or you’ve held hellish meetings with your team. Perhaps your damp, dark, ghoulish space resembles more of a dungeon than an office.

Arguably one of the scariest things that can happen to you at work is not getting paid on time. Many employees rely on their paychecks to come through when expected. If they don’t, employees might not be able to pay for things like their mortgage or childcare. Unfortunately, 1 in 5 employees isn’t always paid on time, according to a 2018 QuickBooks Payroll survey

But it’s not just employees who have to worry about payday. Especially in construction, many business owners have to forgo their own paydays to pay their employees. 29% of construction bosses have done just that. Another 33% say they’ve used personal money to cover payroll costs. 

What causes these payroll problems in the first place? And what solutions exist that can help businesses avoid these mishaps? Let’s get to the bottom of this payroll mystery. 

 

Beware: Dangerous cash flow situations ahead!

Unlike ghosts and UFOs, payroll issues aren’t an unexplained phenomenon. Rather, they’re often a sign of a bigger, more serious condition: poor cash flow management.

61% of small businesses deal with cash flow concerns regularly, according to QuickBooks’ 2019 State of Cash Flow Report. In turn, 32% of those who experience cash flow woes also experience payment and payroll issues. So they’re unable to pay vendors, loans, themselves, or their employees. 

Cash flow nightmares can happen in many different ways. According to the State of Cash Flow Report by QuickBooks, the most common causes are: 

  • Waiting on outstanding receivables. 33% of small businesses have over $20,000 in outstanding receivables (unpaid bills for services offered to a client or customer). On average, U.S. small businesses have over $53,000 in outstanding receivables. 
  • Waiting for incoming cash to process. The majority of small businesses (53%) invoice clients or customers for services. Only 47% use advanced payments, which can help speed up payments and alleviate cash flow issues. 66% of small businesses say the time it takes to process payment “has the largest impact on their company’s cash flow.” 
  • Mismanaging payroll and delaying employees’ paychecks. Although cash flow can affect payroll, the reverse is possible. 77% of small business owners agree that paying employees on a set schedule would help them better manage cash flow. 
  • Struggling to gain capital or loans with low interest rates. Not all business owners apply for startup loans. 55% of U.S. small business owners say they didn’t think they would need a loan, so they never applied. Another 29% say interest rates were too high. Other reasons included not wanting to make high payments on loans and being unsure if they would be approved. 

 

Vanquishing the fear of a late paycheck

As scary as poor cash flow management is, you don’t have to lose sleep over these scenarios. With some clever planning, you can save the day for your employees and their paychecks. 

First, you’ll need to unmask the real culprit behind your cash flow problem. Consider how you forecast sales and how long you wait for payments to come in. 

Whatever’s behind your cash flow woes, take a step back to see how you can adjust your business plan. Here are four ways to get started:

  • Adjust your budget. Consider your business budget and see where you can cut back or make changes. Maybe you can order less backstock, or choose a different supplier that offers more discounts. Once you identify some areas of improvement, start saving up to build your cash cushion for when outstanding bills start adding up.
  • Reevaluate your client list. If you find clients are unreliable or often late to pay you back, think twice about working with those clients in the future. Alternatively, offer flexible payment options, or require clients to pay a portion of their bill upfront. 
  • Update your billing cycles. If you’re often waiting for payments from clients or customers to pay your staff, then you might want to require shorter turnaround times on your invoices. Evaluate your invoicing habits to see how you can speed up payments.
  • Seek the help of a financial advisor or accountant. These professionals can give you some guidance on where to cut back and how to update your budget and business plan. They can also help you establish better billing practices, so you always have money on-hand for payday.

Cash flow is a big concern for small businesses, and it can have ripple effects throughout the company. But being proactive about when you get paid, who you work with, and how you budget your business can help your employees rest easier. You don’t have to haunt them with the idea of a late paycheck.