• For managing your debt, you should collect the information about the amount that you owe, pay your bill on time each month, use good quality accounting software, create a monthly bill payment calendar, etc.
• It is important to maintain an excel sheet to know how much you owe and to whom.
• You should always pay outstanding bills on time to maintain your CIBIL score.
• A good quality accounting software provides notifications for due dates of EMIs and interest due.
Debt management plan india
You should not bear any loss in your business due to debt. No problem in business is bigger than the debt.
The problem of debt makes you mentally upset that you always think of getting a threat call for money recovery. You never think of business growth in this situation.
Execute the following steps of debt management to get rid of the debt problem:
- Know who and how much you owe?
- Pay your Bill on Time Each Month
- Use Good Quality Accounting Software
- Create Monthly Bill Payment Calendar
- Decide Which Debt to Pay Off First
- Retain Emergency Fund
- Pay off Debt Using Incoming Cash Flows of Business
- Prepare Monthly Budget
- Increase Monthly Payment
- Negotiate For Interest Rate
- Offer Discount to Customers to Repay Loan
- Talk to Experts
- Complete Detail of Business Numbers
- Keep Business Costs Minimum
- Set Off Loan Using Asset
- Diversify Business by Adding Product/Service to Current Offering
- Keep Good Payment Terms with Customers
- Take Money from Investors to Repay Loan
- Refinance Debt
Let us discuss these steps in detail.
1: Know who and how much you owe?
• Generally, people do not know how much debt they have. They use to think from whom they have taken the loan.
• You need to maintain a proper excel sheet mentioning the following details:
• Name of the person loan borrowed from
• Date of loan taken
• Amount of loan taken
• The interest rate of the loan
• Loan repayment date
• You will have reconciled data about the loan you have taken.
• If you have borrowed loans from institutions/banks, then get the monthly statement at the end of each month.
• You need to check the amount of the remaining loans after EMI and interest payment.
• Put the loans in descending order means to note the high-interest loan at the top and lowest interest loan at the bottom of the excel sheet.
• You should know that first, you need to pay the highest interest rate loan
2: Pay your Bill on Time Each Month
• Whatever is your outstanding bill, pay it on time.
• Do not think that you will pay it after some time by paying some more additional money. This develops into a wrong attitude.
• As much as you delay in payment of your loan instalments a high penalty is charged to you and this also makes your CIBIL score poor.
• Check your CIBIL score, the number of red cross sign reflects the delayed payment of instalments by you and this makes your repayment record poor.
• You should pay all dues on time, to avoid the red cross sign on your CIBIL report.
3: Use Good Quality Accounting Software
• Tally and ZOHO are some of the good quality accounting software you may use for your debt management.
• The accounting software will send you the notification related to loan details such as the amount due and the interest you need to pay.
• All these things you can manage with good accounting software.
4: Create Monthly Bill Payment Calendar
• You should have a calendar in which month and on what dates, which bills you need to pay.
• You can plan your cash flow accordingly. You will know that in the first seven days you need to pay electricity bills, in the next seven days water bill, in the next seven days interest of a loan, and the last seven-day interest payment of another loan.
• Whatever are your bill payments maintain them properly on the monthly basis.
5: Decide Which Debt to Pay Off First
• Note the loans in descending order and repay the highest amount and interest rate loan first.
• Repay the highest amount of loan as quickly as possible on receiving the money.
• You can also borrow a low-interest rate loan to pay off the high-interest rate loan as soon as possible.
6: Retain Emergency Fund
• Whatever you need to do or pay, every month you need to create a rainy day fund.
• It means that whenever there will be an emergency then you will need this fund to protect yourself.
7: Pay off Debt Using Incoming Cash Flows of Business
• You should try to repay the loan with the cash inflows of your business.
• Never use your savings because savings are personal and the loan is of business.
• Increase the revenue of your business by focusing on it and repay the loan by incoming cash of the business.
8: Prepare Monthly Budget
• You need to prepare a monthly budget in that plan for all your expenses on which date what expense is to be created.
• The budget makes you disciplined as you would be undisciplined without a budget.
9: Increase Monthly Payment
• If you have some EMI then you should start paying more than EMI. This will help in reducing the interest rate and debt would be closed quickly.
• This method will help you in quick debt closure. This will help you in focusing more on your business as you do not have to pay any interest.
10: Negotiate For Interest Rate
• Whenever you pay interest or EMI, write an application to the bank, private lender, or NBFC to reduce the interest rate of the loan by 0.5% as timely payments of interest and EMIs have been done.
• The maximum number of times you will write the application, the chances of less interest rate and early repayment of the loan are maximised.
11: Offer Discount to Customers to Repay Loan
• If you have a loan and your customers are not giving you money, then give discount offers such as 2% to 3% to them to get the due payments and repay the loan.
• It is very important to make money from customers if you have a loan.
• You have a loan and provided the loan to others. Your customers may default.
• It is very important to repay the bank’s loan.
• Always remember that if you have a loan then your customers should not have due payments, take the payments from your customers as soon as possible.
12: Talk to Experts
• Talk to your accountant, banker, or financial partner to know the following:
• Techniques that can be used to replace the loan
• Some scheme of the government to get subsidy on loan
• Some way to plan the tax and increase the cash plan
• Your accountant, bank, and financial advisor will tell you about the way to increase your net cash flows. This will help in the early repayment of your loan.
13: Complete Detail of Business Numbers
• Whatever numbers are occurring in your business in terms of investment done, revenue received, cost incurred, cost of raw material and labour, and cost of supplies, you should have complete details of all this.
• If you do not have details then you would not able to repay the loan.
• You should have complete control over your business else you will never be out of your loan.
14: Keep Business Costs Minimum
• You should try to keep the business cost as minimum as possible.
• When you have a loan, you cannot enjoy it.
• It is your moral responsibility to repay the loan.
• You should not splurge at that time.
• All the big company owners who have taken the loans and splurged are now considered bad as they defaulted on the loan payment.
• Those people are said to cheat their country.
• You should pay the loan by minimising the business costs as much as possible.
15: Set Off Loan Using Asset
• If you have some land, shop, asset, factory, warehouse, unused jewellery, or gold/silver bricks/coins and it is not of no use and you have a loan, then immediately set off the loan by selling any of the unused assets.
• You do not know whether the value of assets is increasing or not but a loan always increases.
• You have to keep in mind immediately repay the loans by selling whatever assets or inventory you have.
16: Diversify Business by Adding Product/Service to Current Offering
• Diversify your business by adding more products to the business to earn more revenue.
17: Keep Good Payment Terms with Customers
• If you have a loan then keep good payment terms with your customers.
• You may make an increase or decrease in the price.
• Try to keep payment terms as much as possible in advance and quick completion.
• Many do not pay the dues even after 70 to 90 days of the service delivery.
• Imagine if you get the payment 90 days before then you will be able to save your interest amount.
18: Take Money from Investors to Repay Loan
• You can make money from your investors to repay your loan.
• You can do equity fundraise or sell some shares of your company to have the money and repay the loan.
• The loan is very risky for your business because a little stress on your business such as COVID time then it will be very difficult for you to run the business.
• If you do not have a loan and you ramp down your business a little even then there will be no problem.
19: Refinance Debt
• If you have so much of a loan, less time is left for repayment, and EMIs are also so many and you are not able to repay then get it refinanced.
• Refinanced means suppose 12 months are left for loan repayment, you talk to another bank that provides loan and that will be repaid in 48 months.
• Refinance the debt by reconsolidating the loans if you do not have enough money to repay.
You should have different behaviour when debt is on your books. You should always try to minimise the debt and quick and early repayment to ensure the growth of your business.
Conclusion:
• Implement the debt management steps to repay the loans
• Use incoming cash flow to repay the loan
• Maintain good payment terms with the customers for early repayment of the loan