If collection agents like me are calling you, you need to reduce your debt. The Covid-19 pandemic has been hard on a lot of businesses and business owners. People who have never been late with a payment in their life are suddenly facing a pile of bills. To avoid your account being sent to collections, you need to find ways to reduce your debt.
1. Prioritize your bills
There is no one right way to prioritize which bills to pay first. But, if you cannot pay all of your debts you need to be strategic about which ones to pay. Things to know when prioritizing:
• Taxes are non-negotiable. You will only make your problems worse if you fail to pay either your business or payroll taxes.
• Payroll should also be non-negotiable. You don’t want the karma that comes with not paying the people who work for you.
• Debts with high interest rates or impending balloon payments can make your situation worse.
• Debts secured with collateral might make it impossible for you to run your business if you lost the equipment. Similarly, debts that damage your vendor relationships might make it hard to continue doing business.
• Debts secured with a personal guaranty, leave you personally liable for the payment.
2. Collect on unpaid invoices
Cash flow problems can trigger a chain reaction among businesses. One business owes another, which causes that business to owe a third business. You don’t want to find yourself at the end of that chain. If others owe you money, send them to collections. A trained collection agent can resolve the issue faster than your staff. Your staff’s time is then freed up to work on more promising accounts or projects. Getting the money you are owed can help you reduce your debt and avoid being sent to collections yourself.
3. Consolidate your loans
If you have different loans with varying interest rates, ask your bank if you can consolidate them into a lump-sum and apply the lowest interest rate. Make sure, however, that the money you’ll save on the interest is bigger than the money you’ll spend having the loan consolidated. If you have credit cards with different interest rates, you may want to use one card to pay off another. Make sure to read the fine print carefully. When the terms on these offers expire you are often subject to a larger interest rate on the balance.
4. Talk to your vendors
Reach out to vendors and suppliers to whom you owe money. Those who were not open to negotiating a payment plan before COVID-19 may feel differently now. If you can, negotiate for discounts, extended terms or payment plans. Some vendors or suppliers may actually have excess or aging inventory and be willing to offer good deals. There’s no harm in asking but be careful about how you ask. You don’t want others to question your financial strength and ability to pay. If your vendors begin to doubt your ability to pay, they could send you to collections.
5. Consider alternative funding
Crowdsourcing and debt factoring are just two options for interest-free financing. Traditionally, crowdsourcing campaigns make a promise to funders. However, in this difficult time, some types of businesses have been successful at crowdsourcing either donations or gift certificates. Businesses that do well with crowdsourcing have a social mission, a niche clientele, or are considered essential to a community. You do not want to start a crowdsourcing campaign that involves over-promising production you cannot fulfill.
In invoice factoring, you sell your unpaid invoices to a third party. The factoring company pays you a lump sum in advance and the invoice is then paid to them by your customer. If you are in a financial bind, factoring can provide immediate cash flow relief. Factoring companies take a fee, which can be high. Because factoring is not a loan, if your company has no credit or poor credit, you may find funding through invoice factoring easier to achieve than a loan.
If you are not able to reduce your debt and wind up dealing with a collection agent, do not panic. Trained collection agents can help you work through the problem and come up with a reasonable solution. Most reputable collection agencies work on contingency. This means it’s in their best interest to work with you and get payment.
Please let us know how we can help you handle any unpaid invoices that are reducing your cash flow.
In the realm of debt management and financial strategies, understanding the intricacies of handling unpaid invoices, prioritizing payments, consolidating loans, negotiating with vendors, and exploring alternative funding sources is crucial. As someone deeply familiar with these concepts, I've worked extensively in financial consultancy, aiding individuals and businesses in navigating challenging financial situations.
Let's break down the concepts mentioned in the article:
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Prioritizing Bills: This involves a strategic approach to paying debts when facing financial constraints. It's vital to discern non-negotiable payments like taxes and payroll, considering high-interest debts, collateral-secured debts, and those tied to personal guarantees.
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Collecting Unpaid Invoices: Addressing cash flow issues often involves pursuing unpaid invoices efficiently. Utilizing trained collection agents can expedite the resolution, freeing up internal resources to focus on more productive tasks.
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Loan Consolidation: Consolidating loans with varying interest rates into a single lump sum with a lower interest rate can be beneficial. However, it's crucial to weigh the savings against the costs involved in the consolidation process. Additionally, consolidating credit card debt requires careful consideration of terms and potential interest rate hikes.
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Negotiating with Vendors: Open communication with vendors regarding owed payments is key. Negotiating for discounts, extended terms, or payment plans can alleviate financial strain. However, maintaining a balance in negotiation to avoid casting doubts on your financial stability is essential.
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Alternative Funding Sources: Exploring avenues like crowdsourcing or debt factoring can offer interest-free financing. Crowdsourcing, particularly during challenging times like the pandemic, can be successful for businesses with a compelling social mission or a dedicated customer base. Debt factoring involves selling unpaid invoices to a third party for immediate cash flow relief, albeit with associated fees.
Lastly, the article offers advice on handling debt collection agencies. Reputable agencies often work on a contingency basis and aim to collaboratively resolve payment issues.
Navigating financial challenges demands a multi-faceted approach tailored to each unique situation. Understanding these concepts is a step towards informed decision-making when striving to alleviate debt and manage financial obligations effectively.
