Cash Flow Triage: Strategies for Prioritising Payments in a Financial Crunch

When cash is short, someone has to decide who gets paid. That decision is usually made under pressure, often weekly, and it has consequences well beyond the immediate week — commercially, and in UK law, potentially personally for the directors making it.

This covers a practical order of priority, and — first, because it governs everything else — the legal constraints that apply once a business is approaching insolvency.

First, Get a Reliable 13-Week Forecast

Triage without a forecast is guesswork. Before deciding anything, build a weekly cash forecast covering roughly 13 weeks, showing committed receipts, committed payments, and the resulting balance week by week.

It needs to be honest rather than optimistic. Include debtors at realistic collection dates rather than terms, exclude sales not yet won, and show the low point — the week where the balance is worst. That figure determines whether this is a timing problem or a solvency problem, and the answer changes what you should do next.

The Order of Priority

Subject to the legal position above, a workable order for a trading business.

1. Payroll

Employees are preferential creditors for certain amounts in an insolvency, and failing to pay wages triggers rapid departures, employment claims and reputational damage that is difficult to reverse. In practice payroll is close to non-negotiable, and if it cannot be met that is itself a strong signal to take advice immediately.

2. Anything that stops the business trading

The supplier with no alternative source, the software the business runs on, the landlord who could forfeit the lease, the insurer whose cover is a condition of contracts. Identify these specifically rather than assuming — businesses frequently discover that a supplier they treated as critical is replaceable, and one they treated as routine is not.

3. Secured creditors and covenant obligations

Missing a payment on a secured facility can trigger enforcement over assets the business needs to trade. Where covenants are involved, the consequence of breach may be worse than the payment itself. Speak to the lender before missing anything.

4. HMRC

PAYE, National Insurance and VAT. HMRC is generally willing to discuss a Time to Pay arrangement where a business engages early and can demonstrate a credible plan, and is considerably less accommodating once payments have simply been missed. Note that certain HMRC debts rank as secondary preferential in an insolvency, so allowing them to build is not a soft option.

5. Trade creditors

The largest and most flexible category, and where most negotiation happens. Distinguish between suppliers you need next month and those you do not, and be aware that stringing out payment while continuing to order goods creates its own risks.

6. Genuinely discretionary spend

Marketing, travel, subscriptions, projects not yet committed. Stopping these is straightforward and should already have happened by the time triage is being discussed.

Negotiating With Creditors

Call before you miss the payment

The single most effective thing available. A creditor told in advance, with a specific proposal, responds very differently from one that discovers a missed payment. It also preserves the relationship you will need if the business recovers.

Propose something specific

Not “can we have more time” but a defined amount on a defined date, with an explanation of what changes by then. Creditors accept proposals they can plan around; they resist open-ended requests.

Do not promise what you cannot deliver

A missed promise is worse than the original conversation, because it removes credibility for every subsequent one. Propose what the forecast genuinely supports on a bad week rather than a good one.

Get it in writing

Confirm agreed arrangements by email, however informal the conversation. Verbal arrangements are routinely remembered differently once matters deteriorate.

Generating Cash Rather Than Just Rationing It

Triage buys time; it does not solve anything. Alongside it:

• Collections. Frequently the fastest source of cash. Personal contact on the largest overdue balances, escalated deliberately, usually outperforms automated chasing.
• Stock. Slow-moving inventory is cash sitting still. Discounting to clear it is painful and immediate.
• Deposits and staged payments. Changing terms on new orders improves the position going forward without touching existing customers.
• Invoice finance or asset-based lending, where facilities exist or can be arranged — though these carry cost and covenants of their own.
• Non-essential assets. Equipment, vehicles or property not needed to trade.

Knowing When Triage Is No Longer the Answer

The uncomfortable question. Triage suits a timing problem — a business that is fundamentally viable and temporarily short. It does not suit a business that cannot service its obligations from trading at any realistic level of performance.

The signals that it has stopped being a cash flow problem: the 13-week forecast never recovers whatever assumptions you use; payroll is at risk; HMRC arrears are growing rather than being paid down; suppliers are moving to pro forma terms; and the business is only continuing because creditors have not yet acted.

At that point the responsible step is advice from a licensed insolvency practitioner. Options taken early — a restructuring, a company voluntary arrangement, a solvent wind-down, an accelerated sale — are frequently better for everyone than options taken late, and directors who acted on advice are in a considerably stronger position than those who did not.

Frequently Asked Questions

Which payments should a business prioritise in a cash crunch?

Broadly: payroll first, then anything that would stop the business trading, then secured creditors and covenant obligations, then HMRC, then trade creditors, with discretionary spend already stopped. That order is subject to insolvency law — where insolvency is a real prospect, choosing between creditors carries legal risk and warrants advice.

Can directors be personally liable for choosing who to pay?

Potentially. Under s239 Insolvency Act 1986 a payment that puts one creditor in a better position than others, made when insolvency was likely, can be set aside as a preference — with directors ordered to make good the loss. The risk is greatest for payments to connected parties or those relieving a personal guarantee. Wrongful trading under s214 carries separate personal exposure.

Should we pay HMRC or suppliers first?

Neither answer is automatic, but HMRC is generally more willing to agree a Time to Pay arrangement where a business engages before missing payments. Certain HMRC debts also rank as secondary preferential in an insolvency, so allowing arrears to accumulate is not a soft option. Engaging early with both is better than choosing silently.

What is a 13-week cash flow forecast?

A weekly forecast of receipts and payments over roughly a quarter, showing the running balance and the low point. It is the standard tool for managing a cash crunch because it exposes the specific week where the business runs out, which is the decision that matters.

When should we take insolvency advice?

Earlier than most businesses do. Once you are seriously triaging payments, a conversation with a licensed insolvency practitioner is prudent — it preserves options that disappear later, and taking advice is itself evidence that directors acted properly.

References & Further Reading

• Insolvency Act 1986, s239 — Preferences
• Insolvency Act 1986, s214 — Wrongful trading
• GOV.UK — If you cannot pay your tax bill on time
• ICAEW — Restructuring and insolvency

This guide is general information for UK business owners and finance leaders. It is not legal, insolvency or financial advice, and it does not address every circumstance. If your business may be unable to pay its debts, take advice from a licensed insolvency practitioner and your solicitor without delay — directors’ personal exposure depends on specific facts and on when action was taken.

Adrian Lawrence FCA

Founder & Managing Director, FD Capital

Adrian Lawrence FCA is the founder of FD Capital and a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW). He holds a BSc from Queen Mary College, University of London, and has over 25 years of experience as a Chartered Accountant and finance leader working with private, PE-backed and owner-managed businesses across the UK. He founded FD Capital in 2018 to connect growing businesses with the Finance Directors and CFOs they need to scale — and personally interviews candidates for senior finance appointments.

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