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Tips For Dealing With Debt When Business is Slow

February 29, 2016

Running a small or even mid-sized business today is a little like running the Colorado River in an inflatable kayak. You’ve got to be agile, focused and fearless – especially when it comes to managing cash flow with debt.


Like a Class 4 rapid, debt must be managed carefully. It can propel you forward or capsize your best-laid plans.


Like a Class 4 rapid, debt must be managed carefully. It can propel you forward or capsize your best-laid plans.


For any business, debt is a tool, helping to bridge the gap between cash outlays and cash income. When business is booming and customers are paying on time, servicing debt isn’t a big issue. But during a downturn, pressure to repay it can build. Unlike equity financing which requires no ongoing payments, debt financing obligates you to pay down both the interest and principal.


Like a Class 4 rapid, debt must be managed carefully. It can propel you forward or capsize your best-laid plans. Below are a few tips to help you weather the tough times while making good on your debt obligations.


Invest in efficiency and productivity initiatives


Is your company as productive and efficient as it can be, or is there room for improvement? Address these questions when times are good and you’ll enjoy a stronger cash flow when business slows. Think about new technologies or employee skills that could improve your productivity and/or efficiency. Then prioritize them based on the fastest ROI.


Optimize your accounts receivable policies


Are your customers paying you as fast as you’d like? Would an early payment discount incentivize them to pay sooner? Should you consider requiring a deposit when orders are placed? What about a cash-on-delivery (COD) policy for slow paying customers? If cash is really tight, consider factoring receivables (selling them for cash) at a discount. Any money you lose may be offset by the ability to satisfy your debt obligations.


Review and re-think your accounts payable 


If vendors give you 60 days to pay, there is no reason to pay in 40. Remember, your supplier has vested interest in your long-term success. If you need more time, don’t' be afraid to ask for an extension on payments, lower rates or even a reduction on outstanding loan amount. If you’re a good customer, chances are they’ll work with you. 



Consolidate payments and loans where possible


Chances are, you have multiple credit instruments (credit cards, loans, etc.) each with its own interest rate and terms. By consolidating these instruments into a single loan, you can streamline your accounts payable and in many cases, reduce the amount of interest you are paying.  


Plan when times are good


There’s an old saying: “I build my house when the sun was shining, now I’m not afraid of the rain.” It takes discipline and focus to spend time creating a rainy day contingency when the sun is shining. But doing it when you can, not when you must, gives you time to carefully consider and address the issues above.   


Above all remember, all businesses go through peaks and troughs. What separates the successful ones from those not so successful is the ability to make as much hay as possible while the sun is shining and weather the storms when they blow; not only that, but come out stronger on the other side. Good luck and smooth sailing.

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