Economic pundits are fond of debating whether any Federal Government should operate with a recurring budget deficit, or whether the aim should always be to stay in budget surplus. Inevitably, this debate has extended to individual business operations.
No one likes debt (expect maybe banks). Even the best business will however enter into debt as a deliberate strategy in order to expand, or to seize upon an opportunity that would disappear without access to more funds than are immediately at hand. Other good businesses operate within industries where provision of credit to customers or extended payment terms are culturally ingrained. If cash-flow and collection processes are not strictly maintained (and sometimes even if they are), outstanding payments can grow to a tipping point, where even an immediate change by customers to full compliance with credit terms will not be enough to service debt. In that environment, can there be such a thing as an “acceptable” level of debt?
Rather than looking at the amount of debt you carry, it is wise to first examine what type of debt it is.
Is my debt contributing to my business? For example:
- is it allowing me access to a marketplace I wouldn’t otherwise be able to complete in?
- is it allowing me access to IT, plant and equipment or additional floorspace?
- if so, have I locked in a strategy to service the debt, and in the case of finance have I locked in a date by which that debt will be paid out in full?
If my debt is not contributing to my business, how has it arisen? Most importantly what is the strategy for eliminating it?
Regardless of whether you have “good” debt or “bad” debt, a strategy for keeping them under control is key. For most businesses, income from customers is the only source of revenue available to service debt, and if that income is not predictable and hassle free to collect, any strategy you employ is likely to fall at the first hurdle.
At Matthews Folbigg Lawyers, we pride ourselves on our proven ability to collect delinquent debts for our clients. We are even more proud of the assistance and advice we give clients in establishing and maintaining their own effective collection strategies.
We review your terms of trade to ensure you are getting all the protection you need.
In the case of large commercial relationships we can negotiate the terms of those contracts on your behalf.
We ensure that if it is necessary for us to chase a debt on your behalf, it is done in the most cost effective way possible, with the greatest possible net benefit to you.
