A while back, this blog used to alternate weekly between personal stories and business or social issues kind of posts. I called the rotation Heart and Mind. Well, Mind has heavily been in recess for the last about four months with the exception of some posts on Insurance in Kenya and such. I am currently working my brain through writing a manual on Collateral, Debt and Portfolio Management. Something I tasked myself with when I was given a thirty days sick off for the second time in four months a couple weeks ago. Commercial Debt Management as such is one aspect I wish to write about today.
There is risk in running a business. You know it and so do your creditors. Neither you nor your creditors like it when promises can’t be kept. It’s not personal; it’s not a character flaw. But when things go wrong and you need help, you want the best help you can get. A professional in this area is critical for business and even personal survival. Just like the financial institutions seek to protect their interests through Credit Reference Bureaus, Auctioneers and Advocates among others. A debt manager is instrumental for such.
A good debt manager/ company restructures business/ personal debt and gets the client money to pay it off in a nutshell. This is an individualized debt management service, a Financial Recovery Process, which develops a positive monthly cash flow, stronger financial statements and reduced debt ratios. The net benefit to someone seeking such service will be less money needed to pay off their debts. This is if they’re lucky enough to find debt management that implements such a thorough process directly focused on revenue growth.
A good Financial Recovery Process will utilize a debt management solution that is focused in the three primary areas needed for successful business debt management; Crisis Management, Increasing Cashflow, and Debt Restructuring.
Here, the first priority is in refocusing on a client’s business towards revenue growth. Juggling cash flow to appease creditors and dealing with collection calls, lawsuits and other efforts from creditors to collect money are a complete distraction. They keep a business from investing time, energy and financial resources in the business to keep it moving towards revenue growth. That’s why the first step is to have all collection efforts directed to a debt management firm. All your collection calls stop. No more threatening letters. No more hounding the client for money.
Next is building credibility with business creditors by communicating with them about the client’s economic situation in an honest and forthright way. Letting creditors know that the client is serious about the elimination of business debt. After all that’s why the business hired a commercial debt management company. In hiring a commercial debt management company one will immediately level the playing field by gaining an advocate who will assert their financial interests with creditors.
Creation of an action plan for the client will increase their access to cash flow and pay down their debt. The credibility gained by having a commercial debt management company working for them will create additional flexibility for them to prioritize which creditors to pay first. As a result, a budget can be developed with appropriate strategies that give them the cash they need to run their business in an efficient and profitable manner. Revenue grows.
Access to cash is literally the difference between survival and bankruptcy. In this stage of Financial Recovery Process, focus is solely on generating the money needed to implement an individualized debt management plan. First, prioritize the creditors; doing this will free up capital to invest in the business or to use it in the elimination of business debts that are particularly burdensome to the business’ bottom line. The key here is to free up cash flow so that it can be used in the most productive manner.
Then look at alternative methods of financing which might be useful in generating capital for business growth. There is no need to worry about current creditworthiness or issuing personal guarantees. In addition to typical business debt loans there are also many alternative forms of financing which do not depend on the financial stability of the business or its owners. With a well developed cash flow plan, revenue will grow. Once revenue increases, the business will have more cash to allocate towards business debt elimination.
Restructuring Business Debt
Debt negotiation: It is the step in the Financial Recovery Process whose success relies less on cold hard facts and more on the skills of negotiation and compromise. It is the “art” of the business debt management process. In restructuring business debt, there is working directly with business creditors. Treating creditors with respect and providing client information to them in an honest arms length negotiation. This helps in facilitating the creditor’s understanding and decision making process with regard to their risk in holding client’s business debt.
Creditors have three options during the negotiation of commercial debt. They can accept an offer in compromise, restructure the debt, or pursue their legal rights in collecting on their debt. Overwhelmingly, the majority of creditors will opt for a settlement at a reduced amount which is fairly and honestly negotiated. The net result for the business is a substantial savings each time a creditor decides to settle a debt.
I am not certain as of how many people or institutions assist businesses with this kind of consultancy. I suppose when institutions such as PwC, Delloite, E & Y and KPMG come in as liquidators, facilitators and such, they do something related. In my day to day business processes, I have encountered clients who have potential but have lacked on keys to business comfort or growth because they got overwhelmed with debt, loan management and creditors settlement. It is from such experiences particularly with Small and Medium Enterprises that together with my partners, we are working on assisting small businesses find stability in a model we call Debt Management. Visit us HERE and give us a call, drop a mail, we can talk, we are flexible. Tell a friend. It is possible.