Synopsis: Whether for a business or personal venture, managing and controlling your debt is one of the key elements for financial success. Here are some efficient tips for debt management!

One of the key things to keep in mind when starting a business or even a personal venture is how you would manage your debt. More often than not, amateur business people struggle with employing effective debt management practices and strategies to ensure financial stability.

Although it is true that there are certain types of debt considered ‘good,’ you must pay attention to all types of liabilities. Managing debt can make or break your business and even determine the future of your company or business venture.

Debt management is a method to get your debt under control and employ practices and strategies that move towards obliterating your debt to ensure a more stable business. If you want to know how to manage your debt effectively, take a look at these five effective debt management practices.

5 Ways For Effective Debt Management

Here are some efficient tips for debt management that could help you take better control of your debts and liabilities:

1. Rework your Business Budget

One element that forms the crux of any business is its budget. Therefore, before diving headfirst into tackling your debt, make sure you intimate yourself with your current financial situation. Business owners often only take this step after falling behind on many monthly payments.

However, an effective debt management practice would be to keep yourself abreast about your budget from the start of the quarter, which should include income sources, fixed costs, variable income, and so on.

Leaving room for unexpected payments, tracking profit and loss, and setting money aside to pay your suppliers and creditors is also a good idea to give yourself a little more room to breathe. Consulting an advisor or an accountant can also help you become mindful of this.

2. Prioritize Certain Debts over Others

It is important to note that while some liabilities won’t affect your venture as much with a late payment, others will prove to be heavy on your pockets and your business. Therefore, prioritize your debts and liabilities and analyze which ones need to be paid off as soon as possible.

For example, the tax deductibility of interest on certain debts can also be considered a factor for determining which debt needs to be treated as a priority.

3. Rebuild Cash Flow

However profitable your business might be, if it has a proper cash flow, it will face huge problems at some point, especially in terms of effectively practicing debt management. Therefore, it is important to employ strategies that improve your cash flow. Some of them can include the following:

  • Improve your inventory management in cases of manufacturing, retailing, or wholesaling businesses. Sometimes, excessive or slow-moving inventories can prove to be one of the key reasons for the drain in your cash flow.
  • Ensure that the payment and invoicing of your products and materials happen on a timely basis and revise the credit terms offered to customers to derive cash payments faster. Reconsider strategies for accounts that are becoming an inconvenience.
  • You can also free up extra cash by cutting down on expenses and costs, provided that they don’t affect the objectives of the business, of course.

4. Review and Refinance

Reviewing your loans can play a huge role in improving your savings and ensuring that you have a competitive deal.

Refinancing can also be a great way to rebuild your debt in various ways. For example, you can consolidate multiple loans into a more manageable entity or even optimize the tax deductibility of debt.

You should consider and work on these strategies before any problem arises because a profitable business will land a good deal with lenders. One can also engage with financial advisors and develop effective practices for good management.

5. Implement Robust Account Receivable Processes

Ensuring that a robust collection process is in place makes all the difference when managing customer payments — setting timestamps for various types of communications, such as emails, letters, and phone calls.

Furthermore, make a clear plan of action to follow along on these payments and intimate your staff about the same so that the entire team has a clear idea. To add to this, try acquiring as much information about your potential clients as possible to secure more payments for the services you have carried out and delivered.

You can also regularly contact late-paying customers and request them to make the payment because once you establish the regular process of checking up on late payers, they will more likely prioritize your payments at the top. Do not finish a call without confirming a date for payment in case of extensions, and if the requirement is not met, perhaps even schedule a visit to their place. 

Bottom Line

While it might seem overwhelming to manage your debts effectively and run a successful business, small and consistent steps will ensure stability. Therefore, talking immediately with the debt-related problems in your business becomes an actual hindrance in effectively managing your venture.

Ensure that you have an action plan with you that employs these effective debt management practices to ensure a stable and successful business.