The consequences of mismanaging or misestimating these cycles can be dangerous. This is true even for solid businesses, because running out of cash and not having enough time to replenish the money supply leave the firm unable to pay debts as they come due. Obviously, that exposes the company to potential legal action by creditors. It is also dangerous because,

even in the absence of legal action, the risk to payroll integrity and supplier confidence may easily cause irreparable damage to the overall quality of the operation. You must, therefore, put the highest priority on paying debts as they come due.  With very few exceptions, debts have to be paid in cash as
defined above. Salaries have to be paid in cash. Virtually everything has to be paid for in cash. You may get two weeks, or 30 days, or other terms on which payment is due, of course, but when it’s due, it’s due in cash. When your enterprise has a bill to pay, nobody really wants your delivery truck, or the products sitting in your warehouse, or all the wondrous things your designers, architects or programmers could do for them. Nor does anyone want to be paid with a stack of receivables due, even from your very best customers.

Everyone you owe wants cash. If you can’t provide cash when it’s due, or

somehow reassure your creditors that it’s coming very soon, they will most likely force you into bankruptcy. But wait a minute, you say, you’re a very profitable business with wonderful prospects, a new product line and a world-class customer base. You have a lock on the market and are growing 40% a year. The answer will simply be: Sorry, payment needs to be made in cash. Business doesn’t run on profit; it runs on cash. Business doesn’t run on sales growth; it runs on cash. Your business doesn’t run on even the best and most realistic prospects for the future unless the immediate future contains enough cash to pay your bills. Cash is the fuel on which the enterprise runs, and we need a language to help us talk simply and consistently about it.

Taken From : Cash Rules