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*Reviewed 1st September 2021*

    Capital is a very essential part of businesses. Capital is required for effective business operations. Sourcing for Capital is one phase every business would go through. It is required for business optimization. This capital can either be sourced from personal accounts, family and friends, corporate bodies, investors, etc. Where capital is sourced from third parties it can either be structured or unstructured albeit with the intention to repay the advanced sum. Debt is an obligation owed by someone called a debtor to pay to another known as creditor money or value earlier advanced by the creditor to the debtor upon an agreement for repayment at a later date. Debt management is the process of arranging, planning and budgeting for seamless repayment of debt owed over a period of time. It is a way of getting your debt under check and control.

The goal is to effectively pay off debt with ease thereby avoiding untold hardship on yourself, the business while still maintaining a good relationship with the creditor. It should be noted that debt management relates majorly to unsecured debts unlike mortgages. At the point of taking a mortgage, a mortgage agreement is signed between parties which clearly spells out the terms of the mortgage. Managing debt is a very important aspect of running your business, for insight you can read my article on Managing Credit Before It Becomes Bad Debt.

    Keeping watch on your finances is an act that should be carefully. First tip in managing debt or staying out of debt is to have a well-structured accounting system which affords you an overview of your cash flow and financial strength. A knowledge of this will aid in first making an informed decision of whether or not to take up a loan, gives you an opportunity to project how soon loans can be paid and what can be paid per time. This will further aid developing a budget system. An effective budget helps you see how much money is coming into your account and how much is going out. You will get an idea on what you actually end up with every month and how much of your debt you can afford to repay monthly. By doing this, you will avoid taking up loans which the business cannot conveniently handle and repay. Second tip in managing debt is deliberate commitment to carefully studying and understanding loan or cash advancement agreement.

    It is better to miss out a loan than to receive an advancement that will crash the business. Carefully understand the credit system of the creditor, the terms of advancement, is it such that you can conveniently take up without running into more debt than anticipated. Seek out alternatives, explore various options, compare interest rates and borrow or receive credit from the most favorable creditor with terms suitable for your business. Seek counsel before signing the dotted lines- that includes having your lawyer look through and do due diligence on the creditor. Ask the what if questions? Third Tip, where you have multiple debts running, evaluate and decide which to pay first and focus on one debt at time. Keep a record of due dates and prioritize. Fourth tip, keep record of every payment made to the creditor. Don’t assume your creditor knows how much you’ve paid and outstanding balance.

Request for acknowledgment on every installment paid and statement of outstanding balance from the creditor till full satisfaction