How to Prepare for Business Debt & Interest Hikes?

Figures realised recently by R3 the Association of business recovery professionals indicate that businesses in the UK are getting stronger. The number of companies that just pay interest on their debts has more than halved reducing from 154,000 in August 2014 to 69,000 in August 2015. Obviously this means that more business are actually able to pay off their debts rather than just paying interest which is a good thing.

In some part what’s allowed the recovery in the UK is low interest rates, by staying low for so long it’s alleviated the pressure on businesses on their debt payments. Phillip Sykes, president of R3 said more companies are able to afford to pay off the debt itself and not just the interest as a result of zero inflation, a strong pound and lower oil prices.

Looming interest rises may well increase the pressure on business cash flow. Just under 80,000 businesses indicated they wouldn’t be able to service their debts if rates increased by 1% or more. Although down from last year over 55,000 businesses say they currently struggle to pay their debts when they fall due, these companies are the ones at high risk of failure when interest rates increase.

If you are one of the 55,000 companies then it’s time to tighten your belts and repay your debts rather than just repay interest. How can you do that:

• Look at every expense line of your profit & loss account and cut spending on all non-essential costs, in particular you should look at reducing all your fixed costs and become a lean business.
• Look at all your legal contracts and see if there is anything you can renegotiate in your favour
• Cutting your marketing and sales is not an option although it’s essential that you look at how effective your results are in this area, if you have outsourced your marketing then it may be time to demand results from your supplier or move.
• Look at all the supplier’s you can look to delay payments to so that you can pay off your debts first.
• If you have debtors take a look at your collection process to see if you can make improvements and collect your debts faster.

If you do the above you can most definitely make some sort of cash saving that you can then use to pay your borrowed sums and reduce your overall indebtedness. Cash flow management is essential to get through an interest rate hikes.

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