How to Simplify Business Debts and Improve Your Financial Flexibility?

As a business owner, you find yourself submerged in decoding the incomings and outgoings. The number of debts and payments you make monthly may shock you. Moreover, missing payments due to slow cash sales may affect the overall growth. Therefore, simplify your finances to repay dues. It helps you make other payments, like suppliers’ pay, on time.

 Before reaching out to a financial advisor, improve your finances. Check which aspects you can work on and reduce the cost.  For example, paying off credit card debt may help improve your credit score. However, it is just the bare minimum.  If you want a quick roadmap to simplifying finances from scratch, read ahead.

7 strategies to manage debts and boost financial flexibility

No matter the business size, the following strategies may help you manage debt and simplify finances. By understanding dues, creating a repayment plan, and exploring financial options, you can boost business flexibility. Let’s dive into the step-by-step strategies that may help you ensure better financial control and build a strong business foundation.

• Step 1- understand your pending payments

The first step is to create a comprehensive list of all your company’s financial obligations. It may include:

• Loans
• Credit card balance
• Tax liabilities
• Supplier’s payment
• Overdrafts

Also consider the dues other than this. Categorise debts into short and long-term liabilities. You can arrange them accordingly. Choose the one with the highest interest and total amount you owe. Pay special attention to secured debts and try to organise this. Failure to meet payments may put your business at risk.

• Step 2- Refinance or consolidate wherever possible

Refinancing is the process of getting a new and lower interest rate on the existing loan.  Debt consolidation implies merging multiple payments into a single payment monthly.  It reduces the total amount you owe, the interest costs, and the monthly instalment amount.

You can consider refinancing if the interest rates drop. Alternatively, business debt consolidation loans help simplify payments if you struggle to repay multiple debts. It is better to deal with one creditor instead of several to pay the dues. It helps you cut the hassle and ensure peace.  Also, it helps you free up some cash, which you may use for other business purposes.

• Step 3-  Try to improve cash flow

Individuals struggle to repay the debt on time due to late client payments. Yes, it could also be one of the reasons. Thus, focus on improving the cash flow by optimising the payment terms. Set late payments if the client pays 15 days late than the mentioned timeline.  Alternatively, try to promote early payments by promising whopping discounts on the next order.

Also, try to negotiate better payment terms with suppliers. It is if you are dealing with them for a long time or years. They may agree to reduce the costs if you have good business relations. It helps you cut additional costs and use it efficiently. Lastly, don’t forget to monitor the changes in the initiatives you take. It would help you anticipate the funding shortfalls.

• Step 4-  Use financial facilities (only if needed)

Most individuals depend solely on aspects like unsecured business loans, working capital loans, invoice finance, or secured loans to finance their needs. Yes, these aspects may help you counter a need without paying anything upfront.

 However, it comes with a cost, like Interest and APR. It may make the loan costly. Therefore, identify and tap only one if you lack basic cash flow to counter the need. Compare the costs and fetch the one offering the lowest APR, interest rates, and terms. You can also pre-qualify or get a no-obligation quote.

Get it by applying for business loans with no credit check requirement.  It helps you know the approximate loan costs without impacting your credit score. The actual costs may differ slightly from the approximate ones. However, the difference is minimal. It may help you understand how much you may expect to pay on the loan, including the interest costs.       

 Alternatively, try to keep a cash buffer as an emergency payment to handle the downturns effectively.

• Step 5- Identify alternative funding modules

If you do not find the usual financial options apt for your needs, consider alternatives. It could be an ideal option if you wish to save money on financing an official need. You can check alternatives like Equity finance, leasing, invoice finance, and asset-based lending.

 It may prove a little time-consuming, but it helps you reduce the traditional debt pressure.  However, most of these options are secured finance options. It may mean that your liabilities will be higher with a business asset attached to the loan.

• Step 6-  Review debt regularly

According to a Bank of England survey, “Three quarters of businesses (75%) agreed with statements, ‘I would like to pay off my business debt and be debt-free.” It suggests a strong intention to manage and reduce debt, implying a degree of review.  However, on the other hand, 44% of SMEs never check their credit report and the company’s credit score.

It may mean that not everyone reviews the company’s finances proactively. However, it may turn out to be a costly financial surprise for the enterprises and startups.  Try to review debts at least twice a month. Analyse the bank statements for incomings and outgoings. It will help you analyse the revenue and the profit percentage.  Moreover, you can eventually stop the unnecessary subscriptions affecting the important monthly bills and payments.

Analyse scenarios like- what if the sales drop by 20%? How will you manage the important payments in that case? Yes, having a backup payment plan is important to ensure strong finances.

• Step 7-  Engage with debt advisors and specialists

If you struggle to manage the pending payments, contact the best debt advisors and solicitors. Identify how they may help you get out of the situation. The experts may analyse the pending payments, assets you have, business plan, and the company’s module. It helps them understand the aspects affecting the businesses and provides a repayment plan adaptable to their finances and affordability.

FAQs

• What are the best strategies to consolidate business debts?

The best way to consolidate debt depends on your finances or business structure. Usually, one prefers a consolidation loan or Company Voluntary Arrangement to optimise payments.  However, whatever way you choose, analyse your situation, understand your liability, seek professional advice, and address the core issues.

• How to wipe your credit history and clean it in the UK?

You cannot wipe out the credit history. However, you can take steps to improve your business credit score by removing the financial errors from your credit report. Get your paperwork together, contact the lender, and call the credit reference agency.

However, there is no guarantee that the dispute will be accepted. You may need to provide sufficient proof to prove your point.  In the meantime, you can raise a notice of correction to your credit report for other creditors to know about your plea or the dispute.

• What are the 5 golden rules of managing the payments?

The 5 golden rules of managing the loan payments are:

1. Prioritise debt payments
2. Pay more than the minimum amount
3. Consider a debt consolidation loan
4. Build an emergency fund
5. Don’t close accounts unless you must

Bottom line

These are some of the best ways to simplify business debts and boost financial flexibility. Identify your incomings, outgoings, and new business investments to determine the profit and revenue. Accordingly, try to tighten the strings of the client payment policies to get the dues timely. You can also analyse the best business finance options to meet critical and short-term requirements. It helps you grab opportunities without wasting time.