Attention funders!: Pay up on time

By John Copps 15 March 2010

The chief executive of a charity recently admitted to me that she was using her life savings to pay the wages of her staff. She explained that this was a temporary situation as she waited for a grant to be paid. The cheque was three weeks late.

Financial management is, of course, one of the key challenges of running any organisation – and one of the six areas listed in NPC’s guide to analysis, The little blue book. Unfortunately, charities tend to rely on a capricious mix of funding streams to pay their way. Few have the luxury of predictable income, decent levels of cash reserves or easy access to credit.

This means that for many charities – perhaps the majority – cash flow is always at the forefront of the mind.

Cash flow describes the extent to which money coming through the door on a week-to-week basis is sufficient to pay the bills. It is no good to have a grant due to be paid next month if you haven’t got the cash to pay this month’s payroll or electricity bill.

The timing of income is all-important. In the for-profit sector, for example, more small businesses go bust because they run out of cash than that they are inherently unprofitable.

Many funders don’t seem to understand this and are consistently late when administering payments. I’ve heard of grant-makers that are notorious for having cheques that are always ‘in the post’ and government agencies who can’t seem to keep to their word.

I don’t think for a moment that there is any malicious intent here. I think that most funders just don’t get it. Grants officers and public sector commissioners don’t have to worry about cash flow in their day jobs, so they don’t worry about it when dealing with grantees. But as I have explained, this ignorance could be fatal.

So this is a plea to funders: Pay up on time. Be clear about your payment terms and stick to them.

I would wager that cash flow is the issue that causes more wasted energy, stress and sleepless nights than anything else for the managers of charities. And in many cases it could be avoided.