Is your business struggling under a mountain of accumulating debts? Are you constantly juggling money between accounts in order to pay creditors? Are you days away from defaulting on a debt?

Accumulating too much debt has been the downfall of many businesses, but it does not have to be the case. If your business is struggling with bad debt and poor cash flow, there are several options open to you before you have to consider insolvency.

Creditors compromise

You may be able to reach an understanding with your creditors and negotiate better terms for your debt. If you show your creditors that you are taking steps to settle the debt – such as enlisting the help of a professional advisor – you’ll be more likely to reach an amicable compromise. For example, you may be able to negotiate extended payment dates without incurring additional penalties. If you continue to meet your debt obligations, this could see you on your way to being out of business debt.

Trying for a compromise with creditors should always be your first step.

Debt factoring

Debt factoring (also known as invoice factoring or invoice financing) is when a business sells their invoices on to a third party, who processes those invoices. The usual reason to do this is to receive a loan based on the expected revenue from the invoices. If you need cash in hand fast in order to meet your debtor obligations, debt factoring can be a good short term solution.

Caution is advised if you’re pursuing debt factoring. In the short term it can solve cash flow problems, especially for young firms who might not be able to borrow from a bank. But as an ongoing tactic, there are risks involved. Factoring is usually a more expensive option than a bank overdraft. The best idea is to seek professional, impartial advice before signing over your invoices to debt factoring. 

Debt consolidation

You may also be able to consolidate business debt from a series of smaller loans to one large loan with a more competitive interest rate. This is a common practice in the consumer debt market, that may be beneficial to help you manage debt in your business.

Investors

If you’re strapped for cash, you may be able to raise capital to meet debt obligations through investors. In most cases you’ll be giving away equity in your company, instead of borrowing money you have to pay back. Investors may be reluctant to invest capital if they sense the business is experiencing cash flow issues or is otherwise in trouble.

Asset divestment

Asset divestment is where you sell off business assets – such as property, contracts, plant and machinery – in order to raise funds to service debt. In some cases it can be a valuable strategy to inject new funds into a company – especially if you had assets on your books you were looking to divest for strategic reasons anyway – but is usually a drastic measure that should be carefully considered. Once sold, an asset can no longer perform for you.

Review of expenses and overheads

Conduct a critical review of your expenditures, and benchmark these against industry standards. Are you spending significantly more than other, similar businesses? You can use this information to help you reduce outgoing expenses by targeting the biggest areas of overspend and support the areas of business critical to your success. Telecommunications costs, vacant office space, expensive premises, printing/copying, motor vehicle costs – these could all be contributing to overspend.

If you’re stuck for ideas on how to reduce costs, speak with your staff. They often have a different perspective and clever ideas.

Are you struggling to figure out how to get out of business debt? Before making any drastic decisions, you should talk to a qualified professional advisor. Contact us to find out more.