When wages are late and suppliers are unpaid: one cafe's story

What was going wrong

Paul tells the story of a small Melbourne cafe that came to HomeSec in trouble on every front at once. The suppliers had not been paid, so the deliveries had stopped and the fridge was empty. Wages were late, and the staff were close to walking out. The cafe had tried its bank first, and the bank's view was that the paperwork and the timetable did not fit a problem this urgent. HomeSec funded it against property, the suppliers were paid, fresh stock arrived the next morning, the staff were paid, and the doors stayed open.

Why hospitality runs into this

A cafe carries thin margins, stock that has to be bought fresh every few days, and a wage bill that falls due whether the room is full or empty. A slow month, a broken coffee machine or a large bill can leave a gap between what is owed this week and what the till will bring in over the next few. Suppliers usually extend credit right up until an account goes overdue, and then move to cash on delivery or stop supply altogether, which cuts takings at exactly the moment the business needs them.

What to sort out first

• The exact numbers and dates. Gross wages, tax withheld, super, and each supplier's balance, with the day each one falls due. A gap you can state precisely is far easier to solve than a feeling that everything is behind.
• Your accountant, before you choose who to pay first. Some of these debts carry personal exposure for directors and some do not, and the order matters.
• The suppliers you cannot lose. A phone call with a date attached keeps an account open far more often than silence does.
• Super. Under payday super it is due within 7 business days of each payday, so a late payroll usually means late super too.

The written guide on what to do when payroll is due and the money is not there goes through each of these in order.

Where a property-secured loan fits

If you, or someone in the ownership group, own real property with equity, a loan secured on it can clear supplier accounts and payroll in one go. There are no financial statements to produce: the assessment rests on the property, the business purpose and how the loan will be repaid. Interest can be capitalised for up to 6 months, so nothing is due while trade recovers. For a cafe the exit is usually trading back to strength, a refinance with the bank once the accounts are current, or the sale of an asset. If the business is losing money week after week, though, a loan only delays the reckoning and puts the property at risk.