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When running a business, debt capital can sometimes be a solution to meet the operational needs of the business or to increase the capital of the business. Debt is needed as a tool to accelerate businesses and help them operate effectively and efficiently without being bothered by the problem of lack of capital.

Although debt plays an important role in a company’s survival, sometimes very high levels of debt also pose a major risk to the company if not managed properly. Therefore, the reliability of managing corporate debt is a skill that must be mastered.

How do you manage corporate debt?

Here are some things that can be done to manage corporate debt well:

Make a careful plan before going into debt

Starting a business with debt has become commonplace and can be found anywhere. However, this truism does not enable borrowers to lend lightly. If you decide to get into debt and before filing the debt, you must plan carefully so as not to jeopardize the company’s finances.

The purpose and items for which the loan funds will be used should be clear and detailed. Lenders can also be convinced by this plan since the goals are clear and show the solvency by term.


Adapt to needs

Make a detailed list of funding needs and budgets. Try not to cover financing that is too heavy with savings or other less risky sources. In the absence of hard-to-obtain capital, you can choose debt as a way out.

It should be noted that debt capital is the last resort for financing your company. Also, avoid buying items that are not needed to reduce the company’s budget.


Adapt to the ability to pay

If you have decided to incur debt, then borrow according to your company’s ability to pay it back. Considering the ability to pay off debt can be measured by how much profit your business can make each month.

However, you should not use all profits to pay down debt. Make sure there are still funds for further capital, advertising costs, and investments. To manage the company’s debt well, borrow a realistic amount so that when it comes due, it won’t be onerous.


Focus on debt goals

The next tip for managing corporate debt is to focus on the original purpose of your company’s debt. Meet the previously identified needs. Your steadfastness in handling the loan funds mitigates the risk of future deterioration in the company’s finances.


calculate risk

Risks can arise at any time, no matter how small. Prevent these risks by creating a backup plan so the business can face the worst possibilities. This also helps companies to be more careful with borrowed funds.


Pay on time

The next tip for good corporate debt management is timely repayment. A debt contract must state capital, interest, and maturity.


Debt arrears mean an increase in the burden on the company.

Not only is the main debt not paid, but the interest on the debt is also rising. In addition, coupled with the fine due. Additionally, the financial services company that you borrow from will see no goodwill from your company to pay off. And as a rule, financial service providers that are not banks are very strict in this regard. It could be a collection agency that intervenes immediately to collect the debt.


Avoid paying debts with other debts

You may have heard the phrase “dig a hole, cover the hole” before, which means paying off debt again with new debt. It’s legal, but also risky. Paying off debts with other debts will not complete the loan, but will increase the burden on the business.

Especially if the loan is completed quickly and with higher interest rates. If this is the only way, then make sure that the financial services company you choose is trustworthy, has a legal governing body, is secure, and offers convenience in terms of repayment.


Determine the debt priority level

For those of you who are starting to pay off debt each month, it’s time to make a prioritized list of debts that need to be paid off. The type of debt that takes top priority is reflected not only in the number of payments you have to make each month but also in the impact you will feel if you don’t pay them.


Keep personal and business finances separate

Businesses that are still small tend to combine personal money with corporate profits in the same account. If this method continues, it becomes difficult to monitor income and expenses. Profits and losses generated by the company are not visible.

Therefore, to manage corporate debt, there must be policies, and money management is indeed different for individuals and corporations. Especially when it comes to debt. Don’t let yourself run out of personal money to pay off company debts or vice versa. Or it could be that the company’s profits, which should be used to pay down principal debt and other investments, are being used for personal interests.


Negotiate and cooperate

If your business decides to take on debt, the first thing you should do is negotiate with the lender. With good negotiations, there is a chance that your debt burden will be slightly reduced. You could get loan interest or easy payment terms.

How manage the company’s debt in addition to negotiation also builds good cooperation. This cooperation promotes mutual trust between you as the borrower and the lender. The ease of making the next loan can be an example. Or even the lenders are willing to work together to develop your business.


backup plan

Establishing a backup plan will help your business deal with the worst that will happen to the business after filing for debt. This will be useful for companies to be more cautious when using credit funds.

In addition, you also need to predict the need for the number of funds to be spent, what will be needed and when you will need it so that the loan funds can be used as much as possible.


debt combination

The debt combination mentioned here is for businesses that have a lot of debt or loans that need to be paid from different sources every month. As we know, managing debt from multiple sources at the same time can be very confusing.

To overcome this, you can consolidate debts in one place for ease of payment process and future monitoring. This debt merger can be done by taking out a loan from one place to pay off debts that exist in multiple other sources.

Doing this will leave you with only one loan from one creditor, making it easier for you to arrange the payment process each month without fear of default.


Keep neat notes and acoounting

Besides marketing strategies, accounting is also the most important thing to consider when developing a business. Accounting is the process of collecting and recording data and information related to company finances on a regular and detailed basis.

Transactions have to be routinely and disciplined recorded every day. Details are realized by capturing everything related to the business finances starting from the capital, costs, income, liabilities, etc. This includes liabilities that should be written out in detail, both the amount of the loan, the number of installments as well the payment deadline.

With good records and bookkeeping, there are many other benefits that the company can receive. The company’s movements become more recognizable, operating costs can be controlled, one’s assets are recognized, the risk of asset loss is minimized, and much more. Therefore, start learning about financial accounting or business transactions, even if it is easy.


Use journals to manage your company’s debt

There are times when debt becomes a problem that cannot be solved alone. In this case, it is a good idea to seek professional help from various institutions that offer financial management services or use financial management technology.

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