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An Entrepreneur’s Guide to Reducing Small Business Debt

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As a small enterprise, taking credit can help your business in more ways than one. You may need external finance to keep up with your business’ growth spurt, or to purchase necessary inventory before the payments begin to roll in. However, it is important to keep a check on this to ensure it doesn’t spiral into an unmanageable amount of debt. So, it is essential that you periodically take necessary measures to reduce small business debt. Here are 5 handy measures that you can deploy to do so.

  1. Instate a better collection system

If a large component of your debt includes dues from clients, tackle this aspect first. For starters, don’t offer any more services and/or products in lieu of future payments. Revise your payment structure and request clients to pay at least half the amount when you start work. To claim outstanding amounts, ensure that you follow up regularly with clients. You can take special measures such as sending someone from the office to collect payment from the client, thereby making it more convenient for them to pay you. In addition, to bring in revenue, you can also offer a bundle of your services or a bulk deal. This is likely to bring in more revenue in one go as compared to a few single orders. To this effect, you can also offer a small discount if your clients agree to make the full payment up front.

  1. Reduce your expenditure wherever possible

While you take other measures to reduce your small business’ debt, also cut down on your expenditure. Revisit the office amenities that you provide and switch to more reasonable vendors. Ensure that your employees aren’t working overtime unnecessarily and that you aren’t splurging on too many team lunches or office parties. Such gatherings certainly help boot morale, but they can also drain your SME financing if you indulge very frequently. Use the money that you save to repay your debts slowly and steadily.  The SME Loan interest rate is low, and comes with easy repayment terms.

  1. Upsell and cross-sell

Another way to generate more revenue is to aggressively upsell and cross-sell whenever possible. For example, if you deal with providing maintenance services to offices, when a customer approaches you to clean the AC filters for their office, you can upsell by offering a complete servicing package including a deep-clean, checking the gas levels as well as cleaning the pipes. Or, when a client contacts you for an AC maintenance package, you can also cross-sell your carpet deep-cleaning services. This is an easy way to enhance your revenue without increasing your costs. With greater revenue you will be able to clear your SME debt much quicker.

  1. Consolidate your debt

Another smart way of reducing small business debt is to consolidate it with the help of a loan. This is especially handy in situations where you have multiple small and large debts. For example, you may have outstanding credit card balances, peer loans or a small business loan that you have taken in the past. Individually, these debts aren’t difficult to manage. But when they are clubbed together the interest rate can sap your savings and add to financial stress. Instead, you can take a loan for SMEs, consolidate the debt and clear it one go. It also makes managing debt easy, as you only have to take into account one monthly payment. Bajaj Finserv, for example, offers SME Loans without collateral that can help you do this with ease.

  1. Liquidate stagnant assets

Another way to generate finance to clear SME debt is to sell the assets that your business is no longer using. For example, you may have extra furniture, spare computers or you may realise that you need only 3 office vehicles instead of 5. Assessing your assets and selling the ones that aren’t essential to your business’ operations will help you raise a tidy sum that you can use to repay debts.

So, whether you choose SME finance alone or a combination of these measures, when you use these strategies at the right time, you can steadily reduce your small business’ debt.

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