Dealing With Company Debt

Effective handling of company debt is an essential part of business management. The value of your business assets, and your annual profit performance, can become almost irrelevant if month-to-month cash flow problems start to impinge on your ability to meet your credit repayments.

Poor debt management can ultimately mean insolvency, and even liquidation.

Credit commitments can take many forms, including company credit cards, business loans from banks or investors, and credit accounts with your suppliers. Successful debt management involves staying on top of both your levels of debt, and your monthly repayments to your creditors. 

Cash flow and credit management

Good company debt management is a crucial step in protecting your cash flow and stemming potential problems with your own debt repayments.

Simple steps such as performing credit checks on all new customers and commercial clients can help you make informed decisions about whether to extend lines of credit, and what terms to offer. Closely monitoring and managing credit accounts is essential, as is taking immediate and appropriate action on overdue accounts. If your company lacks the experience or resources to spend time chasing debts you are owed, then give serious consideration to engaging external company debt collection support.

Dealing with debt problems

If the worst comes to the worst and your business starts to encounter company debt problems, it is important to neither panic nor ignore the problem and hope it will just go away — because it rarely will.

As with most situations and decisions that might confront you in business, the correct approach is to gather information, take advice, and make proactive and informed decisions about how best to achieve a resolution.

In practice, this will involve full and detailed information gathering. You need to look realistically at your company’s cash flow — past, present, and projections for the future. This in itself might point out reasons for your current difficulties — for example is a seasonal downturn responsible for the drop in cash flow, has a recent project or expansion drawn on funds without delivering the expected return? It’s important to accurately and honestly enumerate your business’s assets and liabilities.

It can be tremendously helpful to seek company debt advice from an experienced business recovery specialist — normally a qualified insolvency practitioner. He or she will review your company finances before advising you on viable solutions appropriate for your business.

Debt solutions they may suggest could include:
 

• Negotiation or restructuring of company debts,
• Company Voluntary Arrangement — allowing structured repayment of debts over a period agreed with your creditors
• Pre-pack administration — a restructuring option that may limit liability for debts while quickly selling the business and assets to a new owner
• Voluntary liquidation — in some cases the most appropriate option for settlement of company debt may be to liquidate the company and all its assets. 

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• Late Payment of Commercial Debt: Avoiding Financial Crisis
  
  

  Late Payment of Commercial Debt: How to Avoid It Recent figures show an increasing number of UK companies getting into the bad habit of late payment of commercial debt, with most of them paying debts almost a month after the agreed payment schedule in 2011. The worst identified culprits ...

  
  Posted on 16 Feb 2012
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