Debt is a negative factor for almost every enterprise since it impacts both the economic and psychological health of the company. But do not worry because there are ways to handle debts that guarantee the growth as well as the sustainability of the company’s operations. The highlighted issues in this article offer further insight on how to manage debts and loans so prompt payment can be achieved with extra focus on proper record keeping.

Identify Your Debtors and The Amount Owed

The first step is always the most difficult, but it is crucial to comprehend how much you owe overall. Many enterprises ignore debts due and this makes them miss out on crucial payments. To stop this from happening, an Excel sheet should be set up with the following information recorded:

• The name of the lender
• Total amount owed
• Interest charged
• Repayment terms

It is of utmost importance to clear the debts thus the reasons above also help in collaborating with the lender on repayment plans. Remember to record loan balances in detail after every payment made. Always write high priority loans on top to ensure they are settled first.

 Make Sure Your Bills Are Paid On Time

This is simple to say and yet difficult to do, but the most critical aspect in managing debt is making payments on time. If you delay payments in any form, penalties will apply and your credit score will take a hit. Due to penalties, your CIBIL score may drop and securing loans in the future becomes very difficult. To bypass this issue, set reminders to help you stay on top of your payments. Forming this habit makes it easier to stay in good financial health.

Use Accounting Software for Efficient Management

Technology has altered the way we do almost everything, which includes finances. Correcting a manual process has been and continues to be tedious and prone to mistakes. This can easily be alleviated with a good accounting software as it assists in making the debt management process simpler. ZOHO and Tally for example provide the following features:

• Reminder on the due date
• Payment calendar
• Interest automation
• These tools provide maximum benefits. With these tools, it is easy to forget payment deadlines, not to mention having your time wasted. In addition, using these devices makes it easy to take care of your finances.

Draft a Monthly Bill Payment Calendar

A monthly bill payment calendar will keep you organized. By mapping out your payments, you can greatly reduce the chances of stress close to the payment deadlines. For instance, you could pay all of your utility bills during the first week of the month, loan interest payments in the second week, and so forth. This cash flow calendar enables you to track your cash flow to ensure that your operational business funds are not compromised and that all payments are made within the set periods.

 Pay Off Loans with the Highest Rates First

When dealing with multiple debts, it’s a must that high-interest loans are paid first since they are the most expensive. If you do this effectively, the total interest payment for the loan would most likely be lower. To efficiently tackle your debts, begin by sorting them out from highest interest rate to the lowest. Focus on clearing out the debt with the highest interest first, and then move down the list. This will aid in cutting down on the financial strain in the quickest way possible.

Keep an Allocated Fund For Emergencies

Because the nature of these types of expenses is unpredictable, it can happen at any given point in time. This is why it’s best to always keep an emergency fund. Relying on emergency funds greatly assists in reducing risk of financial woes. Emergency funds ensure that when expenses catch you off guard, you do not have to compromise savings or other funds meant for business expenditures.

Employ Business Cash Flow to Repay Loan Debt

Revenues from your business are the primary cash flow that should be utilized to repay debts. Do not use personal savings to repay business related debts. Instead, concentrate on improving your business revenue through growth and increased marketing efforts. The greater the cash flow, the more the debts can be repaid in a short period of time.

Set Monthly Expenditures

A budget is a must have when running a business. The absence of a monthly budget can lead to expenses going out of control making it hard to repay loans. There has to be a defined budget for all possible expenditures including debt servicing to help the business operate and pay bills without overspending or making late payments on bills.

Increase EMI Contribution Towards The Loan Account

If the cash flow allows, increase the paid amount each month towards the loan. Even a single dollar can help eliminate your debt quicker. Paying an amount more than required monthly installment increases the cash flow within the business by reducing the total interest rate endured.

Bargain for A Lower Interest Rate

Don’t be afraid to bargain with your lender for an interest rate that works for you. If there have been consistent on-time payments, it would be worthwhile to ask for a lower rate. Even a 0.5% decrease would yield remarkable results in the long run. The more you bargain for, the better results you are likely to get.

 Speed up Collection Of Debts Through Discounts

In situations where a customer has an outstanding balance with your company, offering a modest 2-3% discount can encourage rapid payment. Doing so will help accelerate cash flow, which in turn helps repay business loans.

 Seek Advice From Experts To Improve Strategies

Debt management especially with large loans can be challenging. However, consulting with financial experts such as your accountant or banker can go a long way in providing worthwhile information. They can assist you in exploring other means of cutting down on the debt through subsidies or tax saving options.

Keep Detailed Records of Business Numbers

For optimal debt control, managing accurate finances is important. Record all of the revenue made, the amount invested, the cost of raw materials, and the labor expenses incurred. This information will help you analyze the cash flow of your business and pinpoint what challenges might be there. Effective financial analysis is critical in paying back debts and without it, repayment of debts can be a problem for you.

 Minimize Business Costs

Managing any business debt requires the elimination of any unnecessary costs, thus making it a crucial element as well. Non-essential expenses should not be made, particularly when repayments are a focus. Business expenses should remain as low as possible so that money can be shifted towards loan repayment rather than struggling between the two.

 Sell Unused Assets to Settle Loans

Unused assets including land, machinery and factories can be liquidated in order to settle your loans. The value of assets comes and goes while loans tend to pile on. Fulfilling your financial obligations can become significantly easier by selling off non-essential assets to clear your debts.

Diversify Your Business to Increase Revenue

An additional means of improving cash flow and increasing revenue is through diversification. Simply furnishing already existing products and services with new additions can open further avenues of possible income. Accelerated repayment of debts will be achievable through the extra revenue generated.

 Foster Impeccable Payment Terms with Clients

Clients with established payment terms pose less risk to your cash flow. You may set incentives to increase payment collection or adjust pricing to achieve higher margins. Lengthen the period between payment collection to ensure adequate cash to service loan facilities.

Source Equity Investment to Repay Debt

If you are facing challenges meeting payments on a large debt loan, equity investments are an option. Capital can be raised through the sale of ownership interests in the business. This would provide funds required to settle residual loans and mitigate financial strain.

Consolidate Debt Under One Lender

If loan payment obligations seem unsustainable, debt refinancing can restrict the negative cash flow. Debt refinancing gives room for longer loan terms which translates to lower payments. This will help your business to focus on sales activities in order to generate cash flow for operations.

Conclusion

Managing business debt is essential for long-term success. There are tools, processes, policies and procedures that can reduce debt faster and be able to expand. Make sure that payments are done on time, take advantage of tools at your disposal, and most importantly, take action so that debt does not slow your expansion plans for the business.