Why SMEs need to prioritise tackling debt
Small businesses often operate on very tight margins and that means that some level of debt is highly likely – however without the correct management those debts can spiral, leaving a firm in difficulty.
It’s therefore essential to plan for the future and to a close eye on debts and financial management processes.
Credit control and sufficient debt management are key, as it can be easy for small business owners to blame cash flow issues on aspects such as pricing, sales or the economy, despite them not necessarily being the main issue.
Tackling debts revolves around payment terms and the collection of invoices, especially when many UK businesses are owed for work they have already completed.
Improving the process involved can make a difference – from reducing the time needed to chase unpaid invoices to boosting customer relations.
Once debt payment processes are restructured, a business can focus on making sure that the same mistakes are not made again and cash flow should be enhanced as a result.
Recognising where the issues could be is an essential part of the process – corporate advisory services can help to realise the potential of a business and to showcase where procedures may need to change.
A business should also assess its debtors to see how much is owed, and to gain an understanding of the timescales involved.
Those with considerable levels of debt and those that delay repaying for longest should be targeted, as those funds could provide valuable boost to the cash flow of a business.
Undertaking an options review can also help to prepare financial information and to assess business performance while every effort should be made to ensure that all customer details are up-to-date.
This makes chasing debtors a more straight forward process, especially if a business has a clear plan of action with regards to what should be done and when.
Tackling debt is one aspect, but businesses also need to take action to ensure it cannot happen again – appropriate risk management strategies are therefore needed and may include credit checks and related searches on all prospective customers.
By Phil Smith