How to Manage Debt Efficiently

How to Manage Debt Efficiently

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Did 2012 see you completely blowing the business budget or getting into arrears with repayments?  If so, the five tips bellow will help you to put a smile on your accountant’s face during 2013. Simply follow these five comprehensive tips to learn how to manage your company’s debt more efficiently, pay off those urgent bills and have a little extra cash in your pocket for the future.

1) Get organised…

If your financial affairs seem as tangled as a ball of yarn, now is the time to get organised.  Organisation is the key to managing both personal and business debts, so, dive in at the deep end today and create a spreadsheet highlighting all the different debts you owe, along with vital information such as amount, payee, minimum payment amount, due date and current maturity date.

Alongside, make a similar table populated with your cash flow, include invoices you’re owed, when they’ll be paid and then list any other money you can get access to and the date it’s available.  This will help you see in black and white what you can afford to pay off and when.

Look at everything you owe and start by paying off the debt with the highest interest rates first.

2) Make your clients pay up!

 

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Now is not the time to suffer fools gladly, you need every penny you can get to pay off your debts.  Track down all your clients with outstanding invoices and ask them to pay what they owe you, and quickly!

To help improve future cash flow, start putting a deadline on your invoices and tell clients you’ll add on fees for ‘admin’ if they don’t pay within the set date.

If the client is still not paying:

If you’re worrying about hefty lawyers’ fees for chasing overdue or disputed payments, don’t!  As this article shows, there are plenty of low cost ways to get back what you’re owed, including mediation, collection agencies and more.

3) Reduce expenses to help improve cash flow…

Reducing overheads in your business will help to improve cash flow in the future, handy for paying upcoming bills.

Put any additional leftover cash towards debt repayments to reduce the amount of interest you’ll be paying on your loan or credit.

How:  It’s simple:  call suppliers to work out which company can provide the cheapest services for your business and consider switching.  Review utilities, Internet packages, mobile phone contracts, insurance agreements and courier services for starters!

You should also aim to find other innovative ways to reduce you expenses and raise money to pay off debt.  Here are a few ideas:

  • Limit staff usage of resources like paper and ink: Urge the office to go paperless and enforce staff to request management permission before printing documents.  This should save costs in the long run and stop people using the company-bought resources for personal use!
  • Reduce energy costs: Employ energy saving techniques such as switching off unused equipment and sealing up drafty windows to ensure bills are lower over time.
  • If possible, allow staff to work from home one day a week: A day with lots of staff out of the office means less air conditioning, electricity and resources being used.
  • Space at a premium, can’t afford to relocate? “Hot-desking” is very useful if you have more staff than space!  It’s worth trying for a few months before renting more office space.
  • Curb business travel expenses:  Allow only necessary travel through the business and tell staff there’ll be no work-funded conference trips this year.  If staff must travel, limit them to booking the cheapest flight & hotel packages available.
  • Look for cheaper office space: Do you need all the space you have? Could you downsize or find similar space for less cost elsewhere for a lower monthly rent?  It might be worth thinking about.
  • Barter with other companies and trade your goods or services: This one is pretty self-explanatory.  Make partnerships with others and offer them your services, for free, in exchange for theirs!

4) Invent new chargeable services:

When the going gets tough, the tough get thinking of new ways to make quick cash!

If you have a loyal customer base but you really need to earn some cash quickly to pay off debts, think about charging additional fees for new services that you haven’t previously offered and offer them to clients as an upsell.  They need to add value to the business, but can include anything from paid priority support to one-on-one tuition or installation and set up of a new product.

5) Take out a loan

Some companies are dedicated to offering short-term business loans to help to bridge the cash gap in-between invoice payments.  These are ideal if you need to pay a contractor or a utility bill, but you’re waiting on a big invoice to be paid from a client.

These companies tend to provide cash quickly and easily.  You decide how much you will need and how long you require (usually a couple of days or weeks) then you will repay the loan once that nice fat cheque comes in!

For more information on managing debt, Wonga South Africa provides a comprehensive resource and free downloadable quick borrowing guide.

Janice Damian
Janice Damian, MBA in finance, is an independent financial consultant based off of Cape Town and specializing in cash flow management. She is also a freelance financial writer whose work has been featured in numerous financial journals.