Business Tips

How to Better Manage Your Business Debt

Debt is often necessary when it comes to running a business. It can help you finance your business needs and make it possible for you to operate. However, it can become cumbersome when business is slow or if you run into cash flow problems. Reach out to a banker to talk to someone about your business cashflow. Following are some tips for better managing your business debt.

Reduce Expenses

The first thing you should do to get your debt under control is reduce the expenses you have. Look for cheaper and free alternatives to products, services, and subscriptions you use. Negotiate with vendors. Consider moving to a less costly space. You need to consider other expenses to cut if your debt is becoming a problem.  

Improve Accounts Receivable  

Cash flow is a major component in debt management. It’s much harder to pay your debt if you’re not getting paid on time what’s owed to you. Find ways to improve accounts receivable. Utilize electronic billing and online payments. Automate late payment follow-ups. Have a clear late payment policy that incentivizes your customers to pay on time.

“If you are often lagging behind on sending invoices to your clients, work to send them more frequently,” says the National Foundation for Credit Counseling. “This will minimize cash flow issues, which can sometimes lead to debt. Depending on your agreement with clients, you might also consider shortening the due date on your invoices.” 

Figure Out Your Repayment Strategy

You need to have a plan for repaying your debt, and figure out how you’re going to go about it.

NOW CFO discusses two methods for paying off debt more quickly: the avalanche strategy and the snowball strategy. The former is making extra payments to accounts with the highest interest rates while making minimum payments on other accounts. The latter is knocking out the smallest debts first, then continuing to pay the larger ones.

“Both strategies have advantages and disadvantages,” NOW CFO says. “If you’re unsure of which debt payment method to employ, or how much your business can afford for extra debt payments, these challenges make great accounting jobs. Consider delegating debt management tasks to your accounting team, or bringing in an outside consultant if necessary to get your business back on track.” 

Negotiate with Creditors

Don’t be afraid to negotiate with your creditors if you’re having trouble making all of your payments. You might be able to get a lower interest rate, smaller minimum payments, or a new repayment plan altogether. They will most likely be willing to work with you because it ensures they will get paid.  

Consolidate with a Loan

If you have multiple sources of high-interest debt, it could be wise to take out a new loan to consolidate it all with a new, lower interest rate. Not only can this save you money and make your debt more manageable, but it can also be much easier to make a single payment each month instead of keeping track of your various accounts.

Getting your debt under control is key to a healthy business. Consider the above tips to better manage your business.

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