Debt management strategies for SME business owners

Although it can have negative connotations, debt is inevitable for most businesses.

Loans are huge contributors to growth for a lot of small businesses, so it isn’t uncommon for business owners to have to balance repaying loans with investing in their operations.

While this can be a challenge, there are a range of ways that businesses can stay on top of debt and achieve their growth goals.

Let’s talk about loans

If business loans are a source of stress for your business, you may first need to consider negotiating with your provider.

Depending on how much you have borrowed, your creditworthiness and existing terms, you may be able to negotiate better terms with lower interest or an extended term to alleviate some of the pressures of repayment.

Alternatively, some business owners turn to refinancing – taking out a new loan with better terms to repay the existing one.

However, refinancing could have a negative impact on your credit score and will still mean that you have debt to be repaid.

You should seek professional advice before taking on additional debt, as we can help you plan for repayment and identify alternative options.

Boost your cash flow

To reduce debts while maintaining growth and current expenditure levels, you will need to carefully manage your cash flow to boost your incomings and keep a lid on your outgoings.

You can boost the amount of cash coming into your business by ensuring that all outstanding payments owed to you are paid on time and in full.

Facilitate this by:

• Including invoice conditions in your initial contract
• Submitting invoices on time and accurately
• Keep a record of all services rendered
• Send polite but firm reminders
• Set a payment deadline and consider late payment penalties

Unpaid invoices can result in a significant cash flow problem because, with less cash coming into the business, you may fall behind on repayment of loans or payment of services rendered to you.

Additional forms of financing

As well as increasing the cash coming into your business through payment for your services, there are other options available to you, including:

• Invoice financing – Borrowing cash against your unpaid invoicing, which you then repay with interest after the client has paid the invoice.
• Invoice factoring – Selling your unpaid invoicing to a third party at a discount, which will then assume responsibility for collecting the full payment and you’ll be repaid, minus fees.
• Asset financing – Putting your assets up as collateral to secure a loan.

These are useful strategies for short-term debt management. However, if you find that invoices are frequently going unpaid, you may want to analyse this and reexamine your payment structure.

Reducing costs

On the other side of cash flow management is monitoring your outgoings. Reducing unnecessary expenditure can not only help with debt repayment in the short term, but it can also support ongoing efficiency and streamlining of your accounts.

You will need to review your costs from all angles to make sure you’re not cutting expenditure on essential items.

Potential areas for spending reduction include:

• Operating expenses – Identify opportunities to negotiate with suppliers and evaluate whether current investments are working for the scale of your business.
• Process optimisation – Conduct an internal audit of business processes to identify inefficiencies, which may allow you to automate certain tasks or bring in new workflows.
• Inventory – Avoid spending on overstocking as this ties up valuable capital in unsold goods and can result in a cash shortage.
• Capital investment – Delaying large expenditures can free up cash for debt repayments or essential costs.
• Maximise tax reliefs – If spending can’t be delayed, make sure you benefit from any tax reliefs, such as R&D relief or other capital allowances.

Cuts to expenditure do not need to be significant to have an impact. Minor cutbacks in multiple business areas can add up to a substantial saving that can help you to manage debt.

Smart decision-making

Cutting costs is a great way to manage debts and free up capital to repay loans and other debts – but strategy is key.

By incorporating cloud technology into your accounting processes, you can view real-time data and identify patterns quickly and easily.

This can show you where your major costs are and help you identify where you can afford to make cuts.

Many systems also allow you to:

• Manage budgets
• Integrate with other systems
• Manage invoices (payable and receivable)
• Oversee and categories expenses
• Automate reporting

Used correctly, cloud accounting can represent a significant long-term saving in addition to helping you cut costs and streamline your finances.

Don’t let debt management be a roadblock to growth. With the right support, you can meet your commitments and achieve long-term financial efficiency.

We can help you to manage business debts simply and effectively. Get in touch today.