Lucy - BQ Magazine EditorSpending money is often the last thing you want to do when your business is in financial trouble. But there are times when being prepared to pay a little extra can help you dig your way out of debts and arrears. Below are a few examples of times when it could be worth spending extra money to fix your finances.
Business loans
Loans can be a convenient way of paying for unforeseen costs that you don’t currently have the funds to pay for. However, loans come with greater long-term costs. The more money you borrow, the more money you’ll be paying out each month. And interest fees mean that you pay more in the long run than were you to pay for such expenses using savings.
So in most cases, when you’re already financially struggling, it’s best to avoid loans – they will only add to your problems. There are exceptions of course. Loans can be used to consolidate multiple debts, which can make it easier to track payments and possibly even pay debts over a longer term, even if there is likely to be added interest on top. Refinancing is also a good way to use loans to reduce debts – this involves taking out a low-interest loan to pay off a higher-interest loan so that you’re paying less interest in the long run.
Invoice factoring
Many companies owe money and are owed money by clients. Sometimes these late client payments are what cause companies to spiral into debt. If you’ve got late-paying clients, instead of taking out loans to pay for bills, you should consider invoice factoring. This involves selling your accounts receivable to an invoice factoring company at a discount.
For example, if you are owed $200, you can sell your invoice to an invoice factoring service for $180. You then get the $180 there and then and the invoice factoring service takes on the responsibility of getting back your money from your client. The disadvantage is that they take a cut of your accounts receivable, so you are making less money than if you were to chase up clients yourself. However, when you need money in a hurry, it’s a good option (it doesn’t affect your credit score like a loan).
Financial advice
Financial advice is possibly the most valuable thing you can pay for when you are in financial trouble. Such services will charge a fee, but in exchange, they can help you to make cutbacks and explore the best financial assistance options (which may even include grants and interest-free loans that you weren’t aware of).
You can search for financial advisors at sites like LINK Advisors. Make sure to hire a financial advisor with a good reputation who does not charge too much for their service.
Debt management services
Debt management services can help you find ways to reduce your debts if you cannot pay them off. This may include negotiating debt payment terms such as temporarily freezing debt, lowering interest rates or reducing monthly repayments.
Debt management services do pay a fee upfront, but this cost is worth the potential costs saved in the future. Just make sure that you choose a reputable debt management company. This guide at Forbes lists some of the best debt management companies to choose from.