Staying afloat can sometimes be difficult for businesses that are grappling with constantly-changing markets and consumers who are demanding latest products and services. It’s easy for your business to fall behind on payments.
In fact, business insolvency, or the inability to pay off debt, went up 9 per cent across Canada between May 2015 and May 2016. However, debt management can be a sure way to get your business back on track.
Hire a Debt Management Professional
Debt management professionals have the skills and tools to guide you through the necessary steps to regain control of your debt. They can provide you with accurate information to navigate a sometimes-confusing situation. They can even assist with matters such as drafting budgets and letters to creditors. There are for-profit companies and non-profit debt management agencies. The choice is yours.
Review Budgets & Make Necessary Cuts
One of your first goals will be to free up money. Review your company’s budget, taking a hard look at your expenses and spending habits to determine where you can reduce costs. Whether it is decreasing spending on marketing or payroll, cutting out expensive lunch meetings or selling unused equipment, every little bit helps. The money that is freed up can now go toward debt repayment. Even after the debt is cleared, it is good business practice to maintain a budget and review it periodically; it will give you a better idea of where the money is coming from and where it is going.
One of the biggest mistakes debtors make is to ignore their debts when they can’t make payments on time. A better option is to contact your creditors to arrange a repayment plan. The contact information will be on your latest statement and on the company’s website. Have all your financial information, including your budget plan and current financial statement, in front of you, whether you are speaking to or writing to creditors.
Send a letter if you find that less stressful than making a phone call. You can state in the letter that you prefer to communicate exclusively by letter. That way you have a paper trail of all your correspondence with creditors.
Write the letter on your company letterhead setting out an honest portrayal of your finances and current situation. State your reasons for not making payments on time. Set out your proposed payment plan; for instance, you may ask for reduced minimum payments to eliminate the current debt and explain exactly how you plan to pay in the future. This is the most crucial part.
Attach to the letter all relevant documentation such as your budget showing total revenue and total expenses and any other documents that explain your current situation. Reply immediately to any follow-up letters from your creditors.
Talking to Creditors
Sending a letter or calling creditors can be daunting. When you contact them, it is important to have all your financial statements, including your budget plan. One of the best options is not to ignore your debt, but to discuss a reasonable, amicable and affordable repayment plan with your creditors.
In Canada, each province may have a statute of limitation on debt collection. In Ontario, debt collectors can collect debt for up to two years from the day their first claim was filed. Most creditors will have contact information on their website or it can be found on your latest statement.
Consolidating debt is a common practice in debt management. You have two options: you can take out a business loan to repay all your creditors or you can talk to your financial institution about taking out a debt consolidation loan.
Depending on your current financial situation, it may be difficult for you to get approval for a business loan; so, applying for a debt consolidation loan is the best bet. Having only one loan to pay means that most of your monthly payment will go toward the principal of that loan, enabling you to pay off your debt faster. A secured loan requires that you put up collateral; an unsecured loan doesn’t. Debt management professionals and financial advisors understand how to negotiate with creditors and can recommend the best options for your debt consolidation loan.
If your business is facing a debt management crisis, know that it is possible to get on the right course. Even large companies like Delta Air Lines, Tristar Corporation and Planet Hollywood International Inc. have required debt management assistance at some time in their history. Most companies bounce back because they have implemented and followed a debt management plan. So can yours.
J. D’Agostino | Contributing Writer