Paying off debt – what you need to know


Being in debt – whether a loan taken out or hitting cashflow issues which mean you can’t pay bills on time – can be a millstone round the neck of many small businesses.

It isn’t uncommon some business owners choose to bury their heads in the sand. It’s crucial to the health of your business (and your sanity) however, that you regularly review your debt and what measures you are taking to pay it off. Here is our advice on quick and easy solutions to help you manage your business debt.

Get real about your situation

It’s so important to have a realistic view of your business’s financial health. Don’t be afraid to uncover all your spending, outstanding bills, and loans. Going through your budget at the same time will help you think about where you can save and the amount of money you have to pay off what you owe.

With this information at hand, ask yourself: does it make sense to increase your monthly payments on loans to pay them off sooner? Be realistic – it may be tempting to get it out of the way as soon as possible, but can you afford it? Can you afford the interest payments as well? If not, don’t be loyal to banks or building societies that aren’t giving you the best deal. Shop around for a better deal and a lower interest rate. Be wary though – some banks may suggest that you take out a credit card rather than a loan, as it is easier to do. But, unless you are using it for short-term cashflow assistance and pay off the balance in full each month, you’ll be paying a far higher interest rate on the amount you borrow via a credit card.

If you have more than one debt, investigate whether it’s better for you to consolidate it. Loans and funding can help you have your debt all in one place and create a plan of paying off one creditor rather than trying to decide which of the many creditors you should give your money to.

The most important aspect of managing your debt, though, is to make regular payments – even if they are small. By chipping away at the balance every month, you will see the level of debt reduce – even if it takes a bit of time.

Improve your cashflow

Dealing with debt also means improving your cashflow. It might be your debt can be improved if your customers pay more swiftly. Paying on time might be the difference between you making the loan repayment or having to pay extra to pay later. Don’t be beholden to debtors who don’t pay on time. Check out our debt collection blog. And, if you prefer the carrot to the stick, consider offering discounts for early payment – some people just can’t resist a bargain!

Look at the difference between the payment terms you give to customers and the ones your suppliers ask of you. For example, if you offer your customers 60 days to pay invoices but your suppliers need payment in 30 days, you have a cash deficit as a result. Consider changing the payment terms to customers or speak to suppliers and see if they can offer better terms. If you can bring that gap down, it can help take the pressure off. Also look at how often you bill your customers. If you bill monthly instead of quarterly, for example, it will keep the money flowing more smoothly.

Selling unused assets can free up money as well. Can you move your business to a cheaper area? Is there unused machinery you can sell or lease to other businesses? Take a detailed look at everything you own and ask yourself whether it is cheaper to lease equipment, especially if regular maintenance is required and the lease company is responsible for that.

Don’t be shy – ask your accountant

Accountants are not just for filing your tax return! We can help you with your debt management too. Implementing a zero budget with your accountant’s help can help your cost management as it requires you to justify your spending.

If you’d like more advice on debt management, don’t hesitate to get in touch with us. We’d love to help.

Fiona Grant-Jones

As a Management Accountant, I have a proactive focus on the future. I enjoy working with business owners to improve performance through management accounting and forecasting techniques. My knowledge of Tax and Tax planning has supported me in offering a more complete service to our clients. My interests span from the ones that my mother approves of, such as needlecraft and papercraft to the ones she is not so keen on such as scuba diving and skiing!

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