7 Key Steps to Pay Off Your Small Business Debt

7 Key Steps to Pay Off Your Small Business Debt

Few processes are more critical for small business owners than effectively managing debt obligations. If, for any reason, your business is struggling to stay on top of things, consider these seven key steps to create a roadmap back to financial stability:

Prioritise Your Business Debts 

Kicking off your journey to a debt-free business begins with a clear assessment. Understanding what you owe and the terms attached to each debt is crucial. Start by laying out a comprehensive budget that includes:

• Debts that are urgent and need immediate attention
• Obligations that could impact your business relationships if not addressed
• Loans with steep interest rates or hefty penalties for missed payments

My favourite debt prioritisation method is the snowball debt payment method we wrote about a while back. It's simple and the compounding nature of the repayments makes it seem much faster than you'd expect.

Thriday can be a powerful ally in this process; with all your financial data seamlessly integrated, reconciled and combined in one place plus automated accounting to generate and update your balance sheet and the rest of your key financial statements, you can gain a clearer view of your business's financial health at all times. 

Accelerate Accounts Receivable

Cash flow is the lifeblood of your business, and reducing the time between making a sale and banking the cash is crucial. To improve cash flow, a first step can be encouraging your customers to pay their invoices more promptly.

Extensive payment terms can significantly delay your access to cash so you may want to consider revising your payment terms; if you currently allow 90 days for payment, consider reducing this to 60 or 45 days for new sales to shorten turnaround.  Remember, many customers will utilise the whole payment period available, so it's essential to set terms that reflect your cash flow needs.

Additionally, you should be proactively managing overdue payments. Regularly review your accounts receivable to identify and follow up with late payers; a friendly reminder might be all it takes to get prompt payment. Enlisting a collection agency could also be a necessary next step if gentle nudges fail. 

With Thriday's integrated instant invoicing suite, you can easily issue professional invoices on-the-go so your customers receive their bills immediately to reduce the time lag in payments. Offering early payment incentives and Thriday's automated reminders can also politely nudge your customers to settle their dues on time, and its comprehensive dashboard allows you to track outstanding invoices at a glance, making it easier to manage and follow up on late payments.

Streamline Your Business Costs

Tackling debt often requires a hard look at your current expenses to identify where you can trim the fat. Even if you believe you're only spending on necessities, there's usually room to pare down further, especially when debt looms large.

Conduct a meticulous review of your business outgoings. Challenge every expense and ask yourself if it's truly essential. Sometimes, what seems like a 'must-have' can be downgraded to 'nice-to-have' or even eliminated altogether.

Consider both minor and major cost-saving measures. Small savings can add up quickly—think about reducing discretionary spending like office perks or non-essential subscriptions. For a more significant impact, evaluate your assets and operations. Could you downsize your space or sell off underutilised equipment?

By implementing a mix of these strategies, you can free up more cash to pay down debts.

Boost Your Business Income

Sometimes managing your debts will ultimately require a more robust cash flow; increasing your business's income is the most direct way to achieve this.

Consider creative revenue-boosting strategies, such as launching special promotions to pique customer interest. A well-timed sale or an attractive coupon offer can motivate customers to spend more. However, it's a delicate balance—over-discounting can diminish revenue gains.

Another avenue is to reassess your pricing strategy. If your profit margins are slim, a price hike could be justified. While there's a risk of losing price-sensitive customers, many will remain loyal if they perceive a high value in your offerings.

With features like automated real-time income statements and cash flow forecasting, Thriday can assist you in making data-driven decisions on pricing, promotions, and inventory management, ensuring every strategy contributes positively to your bottom line and debt repayment goals.

Renegotiate Payment Terms with Creditors 

One strategic move in managing your business debt is renegotiating the terms with your creditors. This could mean securing lower interest rates, reducing minimum monthly payments, or extending the duration of your payment plan.

Creditors have a vested interest in your business's success; if your business fails, they risk not being repaid. They are often more willing to negotiate than you might think, as partial repayment or delayed repayment is better than none.

Be proactive and reach out to your creditors. Explain your financial situation honestly and discuss what you can realistically afford to pay. Many creditors are open to adjusting terms to ensure they continue to receive payments.

Using Thriday's Bill Manager to automate your accounts payable can give you a better foundation when it comes time to enter negotiations. By consistently managing and making timely payments, you demonstrate your commitment to financial responsibility to creditors - improving your creditworthiness and potentially provide leverage in negotiating better terms. 

With Thriday, you can easily ensure that your payments are made on time, every time - building a reputation of reliability and financial stability with your creditors.

Consider Debt Consolidation 

Streamlining your liabilities with debt consolidation can sometimes be a viable strategic move to simplify your financial obligations. This process involves securing one larger loan to settle multiple smaller debts, leaving you only one payment to manage.

The true advantage of debt consolidation lies in both reducing the number of payments to manage and improving the terms of your debt. Aim for a consolidation loan that offers lower interest rates, more favourable payment schedules, or reduced monthly payments compared to your current debts. This approach is beneficial if it eases your financial burden and leads to cost savings over time.

Seek Professional Advice and Help

Remember, managing debt repayment isn't something you need to face alone, and there are many resources and agencies you can look to for assistance, including:

• The National Debt Helpline on 1800 007 007
• The Australian Taxation Office business support on 13 28 66
• Business Advisors to help you manage debt
• Health and wellbeing organisations that provide information and support
  

Key Takeaways: Managing your Small Business Debt with Thriday

At Thriday, we understand that clearing your small business debt can sometimes feel daunting - but it's a crucial step to ensuring the health and longevity of your enterprise.

By prioritising your debts, encouraging prompt customer payments, renegotiating terms with creditors, cutting unnecessary expenses, boosting income, considering debt consolidation, and seeking professional advice - you're equipping your business with a robust strategy to overcome financial hurdles.

Remember, every step you take towards paying off your debt is a step towards a more secure and prosperous future for your business. It's about making informed decisions, taking decisive action, and utilising the best tools at your disposal—like Thriday, to help streamline your financial management and provide clarity and control to navigate your debt repayment process.

With the right approach, persistence and savvy financial management, your business can emerge from its debt situation stronger and more resilient. Set your sights on the horizon and start working towards a future of financial independence with Thriday today.