Managing
business debt
Higher levels of debt are a reality for many businesses in the current economic
climate. Sandile Shabalala provides some advice and practical guidelines
S
outh Africa’s first recession in repayment term, which may arise as a amounts exceeding certain limits and
almost two decades has presented result of unforeseen adverse economic customers defaulting on a recurring
unique challenges to businesses, conditions or business events. basis. Swift action, in line with the
many of which have never before Management should at all times have credit policy, must be taken following
operated in a depressed economy. As access to detailed information regarding a nonpayment or late payment, for
a result of the widespread economic outstanding balances, repayment example suspending further credit and
downturn, businesses have had to terms and number of repayments due, implementing interest penalties.
deal with higher debt levels on two repayment history, interest rates and Businesses with high levels of bad
fronts: debt incurred by the business interest paid. Furthermore, it is critical debt should also investigate insurance
itself, as well as high bad-debt levels that management adopt a “hands-on” cover in this regard.
among its customers. Managing debt approach to running their businesses. Already, there are signs that the
during any time of the economic cycle, Financial accounts (cash-flow recession may be over, but its effects will
but particularly in these trying times, statements, management accounts, etc) still be felt for some time to come.
requires effective financial management. must be produced and scrutinised on a Strong, prudent management of
G
Since businesses need capital to grow, regular basis to ensure that the business businesses’ debt and debtors will ensure U
a debt-free business is, in most cases, is meeting its financial objectives. businesses will survive both trying and
R
an unrealistic goal. The emphasis should Repayments must be made promptly, boom times.
not be on avoiding debt but on incurring
U
preferably via debit order, to prevent
the right debt for the right reasons. any omissions and human errors, in
|
Correctly structured, debt incurred – order to ensure the business builds up a
in this instance using long-term debt solid credit record and always operates
m
to fund capital expenditure (such as within the set debt-limit arrangements.
vehicles, buildings or equipment) and Immediately make arrangements with
o
short-term debt to fund working capital a creditor or your bank if there is any n
requirement (such as debtors or stock) reason to believe that the repayment
e
– can help a business grow to the next cannot be met, cannot be met on time
level of profitability and optimise cash- or the debt limit arrangement could be
y
flow management. exceeded.
Determining when debt is the optimal Most creditors are accommodating
solution to achieve growth in a business with alternative arrangements if the
is a crucial management decision that business makes a concerted effort to
should be based on careful analysis address the problem proactively. Many
through a well-prepared business plan businesses are also finding themselves
and a detailed stress-tested cash- in a precarious cash-flow situation
flow analysis, together with budgets as a result of high bad-debt levels
and projections. Banking relationship among their customers, which impacts
managers are in a position to advise on their ability to honour their debts.
companies on matters such as these. Again, prudent management is crucial.
Meticulous planning will ensure Businesses should have a firm credit
that the business owner or manager policy in place, enforced without fail
has carefully considered whether the for all customers. This should include
investment in assets or a marketing thorough credit checks on all new and
Sandile SHabalala is an
campaign will yield the envisaged results existing customers buying on credit,
accomplished banker with 11 years of
and justify the risk exposure of incurring as well as sensible credit limits and
experience with the Nedbank group.
the debt. Stress-tested cash-flow professional credit contracts.
Having led a key business unit within
analyses, budgets and projections will Management should have access to
Nedbank Business Banking since 2005,
also indicate whether the business can detailed debtors information at all times,
he is now a member of the group’s top
afford the debt repayments, factoring in utilising reporting systems that flag
decision-making executive committee
the fluctuation in the interest rate and certain parameters, such as nonpayment
and is the managing executive of
tight cash-flow periods during the debt- of two or more repayments, outstanding
Nedbank Business Banking.
105
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160 |
Page 161 |
Page 162 |
Page 163 |
Page 164