Debts are a fact of life, especially when it comes to business. Even the biggest corporations in the world, such as Google or Facebook, have sustained debts at some point. After all, getting a new credit line can help you afford office equipment and flights for a business trip. However, you need to be conscious of the amount of debt that you will incur
There may come a time when you will realize that the amount of your debt becomes overwhelming. This can hurt your business, as it may affect your cash flow, especially if you have a lot of creditors to pay. But you should not panic. Stay composed, so you will be able to come up with a sound strategy for recovery.
Thankfully, some experienced business people can share great ideas on how debts should be dealt with.
Here are some of them:
List down all your debts
One of the first things that you will need to do is to know how much money you owe your creditors. You may also take into account ongoing expenses that have not yet been paid in full, such as your new equipment lease or the fees of the experienced pedestrian accident lawyer that you have hired to help an affected employee. That way, you will see the bigger picture, which may give you an idea of how to break things down into manageable pieces. As you sort your debts, you may want to categorize them based on their deadlines, terms, and interest rates. Doing this will help you see which among them needs to be prioritized.
You may consider dealing first with debts with high interests. If you’re running a new business, you need to get rid of outstanding debts within the year, so that you will be able to recover and maximize sales while lowering your risk of bankruptcy.
Cut corners
When the ship runs the risk of sinking, you need to let go of things that weigh you down. In this context, you may need to cut corners, meaning you will need to reduce your overheads. For instance, you may sell equipment, office supplies, and other items that gather dust in your inventory. Instead of buying new equipment, consider leasing. If you are trying to cut costs significantly, consider giving up your office in favor of a smaller one – better yet, implement a work-from-home system. The money that you will save can be used for paying off debts. If you are running another company, consider sharing resources, from electricity to employees (just make sure that the employees’ workload is managed reasonably).
Go for refinancing
Sometimes, what makes debt repayment difficult is the fact that you are shouldering high interest rates. If this is your business’ case, consider refinancing your debts. This means paying your debt with another debt but with much lower interest rates. But if your business has a good credit score, you may consider debt consolidation. In this set-up, all your debts are consolidated, so you can pay them all at once every month until the term ends. This will also give you a chance to get a much lower interest rate.
Strengthen your collection efforts
You may be struggling with paying your debts because your cash flow is not in good shape. And this happens maybe because your collection efforts are not robust enough. You need to make sure that your clients’ payments go into your business even before the deadlines. You may want to impose penalties, but if you want a more lenient approach, consider offering rewards and incentives to clients who pay early or on time. While you are at it, come up with sales-boosting strategies.
Recovering from debts can be difficult, especially if you don’t know where to start and you don’t have a plan yet. Come up with a practical approach to payment by looking at your current financial standing and needs. Also, don’t hesitate to seek the help of reliable financial advisors and experts.
