Credit can be a valuable tool for businesses to grow and succeed.
It can help them to invest in new inventory, equipment, or marketing campaigns. However, too much credit can also be dangerous – when businesses are offered too much credit, they may be tempted to take on more debt than they can afford to repay which can lead to serious financial problems, including bankruptcy.
Why are businesses offered too much credit?
Lenders are often eager to make loans to small companies, as they see them as a growth market. Businesses that may not have a strong credit history, can also make lenders more willing to offer them credit.
How to avoid getting in over your head with credit
It is important to be careful about accepting too much credit. Here are a few tips to avoid getting in over your head:
- When you are applying for a loan, be realistic about how much money you need. Don’t borrow more money than you absolutely need and take on more debt than you can afford to repay, even if the lender is willing to offer you more credit.
- Shop around for the best rates and terms from different lenders before you choose a loan. It is important to find the best deal possible, so that you can minimise your monthly payments.
- Once you have taken out a loan, it is important to create a repayment plan and stick to it. This will help make sure that you can afford to repay your loan on time.
How to manage debt effectively
Any small business with debt should manage it carefully to avoid risking bankruptcy. Utilising the advice below could help:
- Create a budget for your business to help track your income, reduce your expenses and improve cashflow. Ensure that you incorporate all your loans into your budget and account for the repayments in your overheads.
- Make your debt payments on time and in full to help avoid late fees and interest charges, and to maintain a good credit rating.
- Prioritise your debt payments by paying off your highest-interest debt first.
- If you are having trouble making your debt payments, you may be able to negotiate with your creditors to lower your interest rates or monthly payments.
- Consider consolidating your debt to make it easier to manage your debt.
- Regularly review your credit report to identify and fix any errors or potential problems.
- If you are struggling to manage your debt, there are a number of professional organisations that can help you. Consider using a credit counsellor who can help you to develop a budget and debt repayment plan.
Increase your revenue
There are a number of ways that you can increase your revenue to improve cashflow and help repay your debts.
- Review your payment terms and shorten the timescales if you need to.
- It is worthwhile contacting your clients before an invoice is due for payment and check when the invoice will be paid.
- If you have customers who are not paying their bills, make it a priority to chase them up.
- Implement a price increase across your products or services – even 5% could make a huge difference to your turnover. If you are providing a high-quality service then customers will be willing to pay.
At Premium Collections Group Ltd, we specialise in helping businesses to recover outstanding debts. If you have customers who are not paying their bills, Premium Collections can help you to get paid amicably. We also offer a number of services to help businesses to manage their debt more effectively including helping you to create a budget, develop a debt repayment plan, and negotiate with creditors.
We work with clients based in the UK, Europe and around the world and are competitively priced for all of our services.