According to www.entrepreneur.com, 50% of the businesses fail because of no proper funding. It is going to be impossible for your e-commerce business to become successful without taking a loan. Business loans, credit cards, and lines of credits are responsible for providing capital for spending on various business aspects as well as the financial growth of the business. It is obvious that debt is one of the most necessary parts of conducting business but it is also known to present a lot of risks. Numerous e-commerce businesses shut themselves down because they are not able to pay the amount that they owe to the creditors. However, there are numerous things that can be done for ensuring that your e-commerce business enjoys all the advantages associated with borrowing without falling into the traps of debt.
Given below is a list of the things that you can follow.
Mapping out the debt
Knowing the monthly payments as well as monthly earning is considered to be the main objective of managing the e-commerce business debt. The net income from your business is the total revenue that you are earning after subtracting all the business costs that include salaries, taxes, and various other expenses. If there is a business loan that you have, it is your duty to pay at the end of each month. You have to clear both the principal as well as the interest.
If there is a stable flow of cash along with a budget that is extremely disciplined, you will be able to pay the debts within a short time period only. However, if the cash flow, as well as spending, can be predicted, you should be able to predict the total amount of money that you can pay to the lender at the end of the month. Businesses can follow debt reduction strategies, which include:
- Spending only on the essentials until the debt has been reduced.
- Dedicating a particular portion of the earnings for extra payments of the debt.
- Trying to pay an extra amount for clearing the debt, especially if the income is going to reach a particular target.
Having a proper knowledge about the loan terms
Before you are borrowing money, it is your duty to read and understand a fine print that is associated. The lines of credits, as well as the business loans, can have several loopholes, which are responsible for pushing your e-commerce business towards trouble. For instance, you need to have a proper idea about the policy of the lender on the early payments. Paying a particular amount of money before the scheduled time is one of the greatest ways of reducing the burden associated with debt.
Some of the lenders are known to impose penalty fees, which will make payments difficult. You have to know if your lender is offering a grace period as the grace period is considered to be an ideal opportunity for your e-commerce business for generating a positive flow of cash before starting the payments. However, the back ended payments can cause a problem for your business if your income is not meeting your expectations.
During times when your business is bringing in high profits, you may find it easy to pay the fees associated with a late payment. However, the late fees are responsible for damaging the business if it is not planned beforehand. You can visit the reputed websites like Nationaldebtrelief.com to know more.
Negotiating the terms
If you see that it is becoming impossible for your e-commerce business to meet the payments, you can approach the creditors for negotiating the terms with them once again. Collections are extremely expensive for each and every lender and if you can prove that your business is not able to meet the monthly expenses, your lender will consider it practical and accept small amounts instead of running the risk of the business unable to pay the loan and defaulting.
Debt management or debt negotiation involves having the lender to agree to a low rate of interest or extending the term of the loan for reducing the monthly payments. If the loan that you have taken is not secured by collateral, you can also opt for debt settlement. In debt settlement, your creditor will be ready to take a part of the outstanding amount, instead of taking the complete amount. In order to start negotiating, you have to send a letter of hardship to the lender and outline the case. The things that you should mention include:
- Why you will not be able to pay your loan and how there has been a change in the financial position of your business.
- What are the attempts that you have taken to solve this particular situation?
- Why the situation that you are in cannot be resolved easily.
Automating the payments
The perfect way of ensuring that you are not missing the monthly payments is by automating them. When you automate the payments, you are going to be saved from the trouble of paying money to the lender each month. Automatic payments are also known to have a psychological effect, which is positive. If you observe the payments going out of the bank at the end of each month, it is going to be much easier for you. The three important ways of automating the payment include:
- Allowing your lenders to withdraw the money.
- Automating the payment with the help of the credit card.
- Automating the payment through the bank account that you have.
Debt consolidation is another option that you have and consolidating your debts helps you to transfer all the debt amounts from multiple lenders to only one loan from new lenders. It might be difficult for your e-commerce business to clear multiple loans, but clearing a single loan is not going to be that difficult. Debt consolidation is responsible for making the payment of the loans in an easy manner and there is no possibility of not paying the loans.
Surviving the business debt is not an easy task, but if you are clever, you will be able to do it easily. Follow all the tips that have been mentioned above and you will understand how you can survive all the withstanding debts that you have.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.