Rising interest on debt can be a curse when running a small business, but there are quick, easy policies you can adopt to combat it. Individually, small steps add a little value; combined, they can make a significant difference. Think of your business like a car in development – improved aerodynamics, fuel injection and weight loss each help fuel economy on their own, but together they could make it a market leader. Here are three easy tips.
Deposit payments straight away
Get into the habit of banking payments promptly. Money waiting to be deposited, or sitting in the till, isn’t working for your business. Encouraging electronic transfers directly into your account saves time and money. Once in your account, those funds either reduce your overdraft and save you interest, or add to your balance and earn it.
Improve your debt collection
Follow up on payments as soon as they fall due – a friendly call reduces how long you wait to be paid, and shortens the time you’re effectively giving customers interest-free loans while paying interest on your own borrowings. An early-settlement discount can also speed things up: for example, 5% for payment within 30 days, or 10% for payment on delivery.
Manage your purchases and payments
Most small businesses have a lot of money tied up in stock. Manage your purchases better and you reduce both your borrowing and your interest. A manufacturer can use just-in-time ordering so raw materials arrive just before they’re needed; a retailer can cut stock levels and draw on a supplier’s reserves after each sale. Talk to suppliers about your needs so they can provide an efficient stock-servicing solution. And use suppliers’ payment terms to your advantage – credit terms are non-interest-bearing credit, so use them as much as you can and seek favourable terms to reduce the interest-bearing money you need to borrow. Over a year or two, these small changes can add up to significant savings.