Debt can help you start and grow your business, especially if you don’t have enough money to finance your business needs. Any debt, such as a business loan, business credit card, line of credit, or even a personal loan for business use, can do you some good. You can use the money you obtained from a loan to buy equipment, hire employees, and finance growth. However, having too much debt can put your business at risk. Know the difference between debt management vs debt settlement.
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What Is Debt Management?
Debt management is used to reduce your small business’s balances on your loans, credit card accounts, and other debts. This method may include certain activities such as negotiating with your credit card company for a lower interest rate, creating a daily budget, payday loan and installment loan consolidation, or even holding a garage sale. In other words, debt management is anything you do that can help reduce, reorganize, and eliminate all of the debts you are currently facing.
When it comes to debt management, you can choose to do it by yourself, with the help of a financial advisor, or with your business partner (if you have one). You can also opt to put your debt management in action with a credit counselor’s help and enroll your current situation in a debt management plan. However, you should know that debt management plans are only good for unsecured debts. This includes personal loans, credit cards, and other debts not secured by any collateral.
Most of all, you should keep in mind that your spending behavior greatly influences having successful debt management. Although other tools can help you create an easier way out of debts, it would not make sense if you still have bad spending habits. You can go through the process of consolidating debts, negotiating for lower interest rates, and others. Still, if you continue to spend excessively and use debt irresponsibly, you will certainly end up in the same debt situation in the future.
5 Business Debt Management Tips
Below are some tips you should take into consideration about business debt management:
List All Of Your Debts
You can start with making a list of all of your debts. Sort them out by interest rates, monthly payment, and due date. This includes the payments on lines of credit, business loans, business credit cards, and outstanding payments due to the vendors.
This process can help you a lot to see the bigger picture of your current debt situation. It can also help in prioritizing your debts. Moreover, some experts recommend starting to pay off those debts with the highest interest rate.
Boost Sales
Once you already have a debt management plan, it would help if you think of ways to boost sales. Here are some ideas you can use:
- Loyal Customer Rewards
Creating a loyalty program is a great way to increase customer satisfaction. It can also help retain customers. According to a study, 82% of people most likely shop at a store that has a loyalty program.
- Social Media Activities
You can try being active on social media to have a better connection with your customers. It would help if you respond quickly to queries and comments, ask for input, and pay attention to your company’s reviews
- Consider Raising Prices
You won’t lose customers by raising the prices if you have the right strategy. Offering a discount on large purchases can be an advantage. Doing so can help your business stay competitive.
Cut Costs
Boosting sales can bring enough revenue to help solve your debt problems. However, if you have to deal with high expenses, here are some ways you can do to cut them:
- Consider selling off office supplies, equipment, and other items rarely used by your company. It would also help to lease or buy used equipment if necessary.
- You can opt to downsize to a smaller office with lower utility and rent costs, relocate to a home office, or consider a coworking space that doesn’t have a long-term lease.
Consider Refinancing High-Cost Debts
If you think you can’t make loan payments anytime soon, it will help if you consider refinancing or consolidation. This is a good option, especially if you currently have strong credit.
With refinancing, you can get a new loan with a lower interest rate to repay the original loan. On the other hand, with consolidation, you combine all of your debts (including the loan amount and interest rates) into one new loan.
Consider Shortening The Payment Terms With The Clients
Your business might have clients on a long-term payment plan. Or, maybe they have been paying late consistently. If this is the case, you might want to consider revising their payment terms.
For example, you can choose to give clients a 30-day payment term instead of 90. Furthermore, offering an early payment discount can also be a good strategy to help collect unpaid invoices.
Too Much Debt Can Hurt Your Business
Debts can help your business run smoothly. However, too much can put it in bad shape in an instant. That is why it is best to know about debt management to help you avoid putting your business at risk because of debts.
