Thursday, May 20, 2021

How to Reduce Bad Debts in A Small Business

 How to Reduce Bad Debts in A Small Business

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Risk is ideally essential to running a business. A well-calculated one can help your business rapidly grow. There’s a 50-50 chance of success in running a business; you can either make it or find yourself in loads of debt. Debts may not always be long-term if you manage them properly. However, many financial consulting firms advise that you avoid exceeding 30% of your business capital, as it tells lenders or investors that you may not be profitable or responsible with your money. This position can be very damaging to a small business and will run your enterprise to the ground in the long run if you don’t deal with it promptly. Are you wondering how to get your business out of any bad debt? Here are a few tips to help you reduce them.

  1. Handle already existing debts

The first and foremost thing to do in your attempt to reduce bad debts is to evaluate the ones you already owe. You can start by looking at the monthly payments, along with their respective interest rates. Your evaluation should also include business loans, vendor payments, credit cards due, etc. This review will help prioritize your payments so you can pay down the loan with the highest interest rate first, which is the most recommended approach. However, if you don’t have the financial capacity and can’t afford to do that, the second option is to pay off as much of your debt every month. Paying the minimum you owe on each loan will help you gradually clear your debt and protect your credit rating.

  1. Renegotiation and refinancing

Another highly recommended option is to communicate with your investors or lenders. You can approach them for a bank loan renegotiation, so they spread it over a more extended period to minimize the interest payments and the monthly repayment cost. You can also find out from your bank if a loan guaranteed by the Small Business Administration can help your company since they tend to have more flexible qualifying standards, longer terms, and lower debt service requirements. Additionally, you can consider refinancing. Doing this requires replacing your existing debt with another one that has favorable conditions, only if your credit record will allow it.

  1. Cost-cutting

Considering your business expenses is an effective way to find funds to pay off your debts, and you can do this in several ways. You can split with other companies that occupy the same building as your business and already pay for the same amenities as you. Try negotiating with suppliers, reducing the amount of space you rent or lease, and downsizing redundant employees. 

These are the highly recommended approaches to reducing business debts. However, if these strategies don’t work, you can still declare bankruptcy as a last resort. Bad debt prevention is always better than debt reduction. Aside from the tips listed above, remember to be clear about your payment terms and penalties, involve lawyers and debt collectors in any business transactions, and promptly send your invoices.

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