Finance Train: 6 Ways You Can Easily Reduce Your Company Deb

Finance Train: 6 Ways You Can Easily Reduce Your Company Deb

From Imran Ali

Once you have more cash coming in, it obviously makes it easier to reduce your debts.

Support this campaign

Subscribe to follow campaign updates!

More Info

If you’re new to the business world, there is one thing that you should know, sooner or later, at some point in your journey, you may find your company in debt. This is a completely normal state to be in and what really defines your company and you as an entrepreneur is how you deal with it. 

One may even say that debt can be good for your business, given that it leaves your business better off in the long term. However, reducing debts is not really an easy task and requires critical thinkingskills and experiential knowledge. Here are six ways you can easily reduce your company debt:

1.  IVA

If you are looking to reduce your company debt, you may want to know more about IVA. IVA is a formal debt solution and a legally binding agreement. It stands for Individual Voluntary Agreement. By agreeing to this, all your creditors allow you to pay back your debts within a given span of time and during this arrangement, your creditors cannot contact you or take you to court.

IVA is especially helpful if you are struggling to pay off your loans since it gives you a reasonable amount of time and you may also ensure affordable rates are set for the payments.

2.              Be smart when taking a loan

When you are considering taking out a loan for your business, rather than just jumping into the decision, it is advisable to do your homework. Calculating your debt coverage ratio beforehand will ensure that you are only taking out loans that you can easily pay back. Debt coverage ratio is a function of your annual net operating income and total debt service.

While your strategy while taking out a loan may be to convince the bank to grant you a huge one, it is inadvisable because if your debt coverage ratio suggests you cannot pay it back, it is probable that you will struggle to do so. A ratio of 1.15 or above is considered optimal by most banks.

3.              Increase your productivity

One strategy to reduce your company debt is to increase the cash flow. Once you have more cash coming in, it obviously makes it easier to reduce your debts. This is why  you should invest time and energy to come up with strategies that result in increased cash flows. The simplest one of these strategies is to increase productivity.

This productivity may take the form of building efficiency or finding new ways to generate revenue. Introducing effective marketing initiatives, upgrading company tech, and providing better training to employees are some of the ways to generate better revenue.

4.              Renegotiate with vendors

Among the strategies to increase cash flow in order to pay off debt is renegotiating with vendors. If you are managing your payable accounts better, you can bring in more cash which can be beneficial in paying off debt.

Most vendors allow their customers to pay for the goods within up to 1 to 2 months of delivery. You may be able to negotiate a discount with your vendors by means of an early payment. Aside from this, you may also look out for other vendors that offer better prices.

5.              Check your interest rates

If your business is in a lot of debt, you may want to take a look at your interest rates. First, you must identify whether your loans are fixed or variable. A fixed rate promises that the rate remains the same for a certain period of time. Variable interest rates may however rise from time to time and businesses with high debts are most susceptible to this.

In order to keep yourself safe from drastic changes in your interest rates, you may want to renegotiate the terms of your loans.

6.              Hire a debt management company

If you are not trained well for managing your debt, you may want to hire a debt management company in order to help you reduce your company debt. Debt management companies look into your business and find out where you’re losing money unnecessarily.

Within your debt management plan, the company may negotiate with your creditors on your behalf and ensure reasonable monthly payments and interest rate. Hiring debt management companies is a great and reliable way to reduce your debt.

Final thoughts:

At the end of the day, while you’re actively opting for ways to reduce your company debt, you need not worry as you are headed down the path of paying off these debts.

Campaign Wall

Join the Conversation

Sign in with your Facebook account or