Does your business have outstanding loans that are impacting your monthly cash flow? Credit cards, capital loans, subscription services, and vehicle payments are all examples of typical credit agreements and overheads of business. These facilities are vital to business operations, but they require paying every month.
Excessive, unmanageable debt loads can negatively impact a firm’s cash flow. Reducing your company debt is a smart way to relieve some pressure from your balance sheet and restore your business’s financial health. Here are five tips you can use to pay down your company debt faster and improve your cash flow position.
#1 Start Paying Yourself First
This concept may seem tough to wrap your head around, but if you don’t pay yourself first, then you never will. Make sure you allocate yourself an amount that you save every month in a high-yielding savings account. This account will be your rainy day retirement fund. Too many entrepreneurs get anxious over needing to settle all the bills as quickly as possible, and they never start saving. Build this important habit from day one.
#2 Make Your Minimum Monthly Payment
Always make your monthly minimum payment on your credit facilities. The minimum payment is usually a fraction of the total loan amount. However, if you miss a payment, it could negatively affect your credit score. A low credit score will hurt you when you want to apply for further lines of credit with institutions in the future, so make the minimum at least.
#3 Prioritize Debt by Interest Rate
Prioritize your debt payments by the amount of interest that the credit provider charges you on the facility. Microloans and credit cards can carry hefty interest rates and settling them first should be a priority. Mortgages and hire purchase agreements are not as necessary to pay down quickly, and you can get away with making the minimum payments on those facilities until you finish paying off your high-interest credit facilities.
Credit card debt is a common tool that company’s use to run their monthly cash flow needs. However, sometimes things can get out of hand, and you could have multiple cards that are maxed out. In this case, it’s best to learn how to consolidate credit card debt into one facility that lets you pay them all off using one convenient payment, it's simpler to manage and cheaper to pay off.
#4 Consolidate Your Debts
Consolidating debt is an excellent way to avoid missing a payment on a creditor account. You can find various lenders that offer options to combine all your mortgage and hire purchase agreements into one easy monthly payment, arranged with the financial terms that you want. You can use consolidation accounts to refinance debts and reduce your monthly payments.
#5 Downsize if Necessary
If your debt is feeling like it’s getting out of control, then it’s time to bite the bullet and start cutting cost where you can to settle your debt faster. Look into your production, over heads, and expenses and see where you can make savings on what you are currently paying. Where are you spending your money and what could you do without in your business? Could you downgrade your internet service, or cancel a few subscriptions services that you are not utilizing? Transfer these savings into your debt.
Using debt is a viable way to grow your business. However, there is good debt and bad debt. Only take on debt that can produce income for your business and avoid liabilities that drain your cash flow reserves. Use these five tips and get started on reducing your business debt today.