Small businesses can never be safe from the possibility of getting in to debt. Often, it’s not even the fault of the business owner – the late payment culture prevalent in the UK can tip a company over the edge. According to UK Debt Collection News, virtually 60% of small business invoices are paid late (and it won’t surprise any small business owners to know that the worst offenders are blue chip companies, high street retailers and supermarkets).
Whilst small business owners are perfectly justified in complaining about how unfair this is, without government intervention, there’s very little they can do to overturn this damaging practice. However, there are steps they can take to help tackle any debt before it gets out of control.
- Alternative funding: the bank isn’t your only source of funding. Since the recession, alternative ways of funding and dealing with small business debt have risen, such as crowdfunding, peer-to-peer loans and invoice financing. Invoice financing is where you hand over your company’s invoices to a third party who will process your invoices. Your business can then receive loans based on the expected invoice payments.
- Free up cash: increase your efforts to chase your debtors to try and get the money you’re owed in the first place. After that you could: sell off unused equipment – even if it’s broken or out-of-date, you may get scrap value for it; get rid of unnecessary expenses; rent out office space to other small businesses or sole traders.
- Look at your budget: create a new, realistic one based on your current financial situation. Once you know what your fixed costs are, you’ll know how much you can apportion to debt payment. There are many inexpensive accounting software packages designed to help you keep track of your budget, so if you don’t already use one, look at what the market has to offer.
- Prioritise debt payment: don’t just pay off the bare minimum each month or it’ll take too long to get back into the black. Check your interest rates and pay off the debts with the highest rates first.
- Communicate: talk to your creditors, explain your situation and ask if they can help with a realistic payment plan.
- Ask for help: contact a confidential helpline like Business Debtline which specialises in free debt advice for SMEs. They can advise you on many financial aspects, including whether you might be eligible for benefits to help you through the lean times.
If you’re looking for confidential financial advice from approachable specialists please get in touch with the HB Accountants team.
