Last updated on Jul 18, 2024

You're facing cash flow pressures. How can you restructure debt to alleviate them?

When your business experiences cash flow pressures, it can feel like navigating a ship through stormy waters. Debt, if not managed properly, can be an anchor dragging you down. However, with a strategic approach to restructuring your debt, you can ease these pressures and set a course for smoother financial seas. It's crucial to understand that debt restructuring is a tool that can provide breathing room and allow for more manageable payments, potentially avoiding more drastic measures like insolvency.

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Selected by the community from 4 contributions. Learn more

1 Assess Debt

Begin by taking a comprehensive look at all your debts. This means reviewing loan agreements, interest rates, maturity dates, and payment schedules. Understanding the specifics of each debt obligation is essential. You may find opportunities to consolidate multiple debts into a single loan with a lower interest rate or to extend the maturity dates of existing loans. This can reduce monthly outlays and improve cash flow in the short term.

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Muhammad Ahmed Tola

Finance Head I Strategic Finance Business Partner I Ex-Big4 I FMCG Services I Foods I Manufacturing I
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1. Prepare comprehensive training cash flow forecasts. 2. Collaborate with AP and AR departments to renegotiate terms with customers and suppliers to give you room for improvement 3. Advocate cutting down or delayed OPEX and CAPEX spendings with the respective stakeholders 4. Advocate your case with the banks

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ALEX KAMUZELYA

AJ Recoveries LTD
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The important thing is first to find out the factors or reasons for cash flow challenges and determine if is internal or external.For internal factors you are in better position to solve and for external factors get time to engage the appropriate parties.

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2 Negotiate Terms

Once you've assessed your debt, the next step is to negotiate with creditors. Approach them with a clear plan that outlines how restructuring can benefit both parties. You might propose lower payments over a longer period or even a temporary pause on payments. Creditors are often willing to consider restructuring if it increases the likelihood of repayment. Remember, communication is key—creditors appreciate transparency about your financial situation.

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3 Leverage Assets

Consider leveraging assets to restructure debt. This could involve using assets as collateral for new loans with better terms or selling non-essential assets to reduce debt. It's important to carefully evaluate which assets are crucial for operations and which can be leveraged without harming your business's core functions. Asset-based lending might also be an option, where the loan amount is based on the value of your assets.

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4 Explore Refinancing

Refinancing is another avenue to alleviate cash flow pressures. This involves taking out a new loan to pay off existing debt, ideally at a lower interest rate or with a longer repayment term. Refinancing can lead to significant savings on interest payments and help you manage cash flow more effectively. However, it's important to consider any fees associated with refinancing and ensure that the long-term benefits outweigh the costs.

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5 Plan for Future

Restructuring debt should come with a long-term financial plan that aims to prevent future cash flow issues. This plan should include strategies for increasing revenue, cost-cutting measures, and establishing an emergency fund. By being proactive and regularly reviewing your financial situation, you can make adjustments as needed and stay ahead of potential problems.

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6 Maintain Relations

Maintaining good relationships with creditors throughout the debt restructuring process is crucial. Regular updates and honest discussions about your business's financial health can foster trust and cooperation. Creditors are more likely to work with you if they believe in your commitment to repay and see evidence of your efforts to improve the business's financial stability.

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Danish Danial

Finance Manager | Financials Controller | Costing | Financial Operations Manager | Financial Reporting Specialist | ERP | MBA, B.COM
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Maintaining a good relationship with creditors will help to a higher extent to mitigate the cash flow pressure. And the bankers nowadays are more business friendly and have good experience from the market will understand your genuine need and help you to overcome.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Renato Santos

Professional Management Consultant at Various Clients
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Consider partial or full pre-payments of outstanding debts. Not all debts are created equal. Some debts are more burdensome than others with regards to terms such as higher interest rates or earlier maturities. And there may be periods where your financial planning and operational strategies payoff so you have more net cash inflows than expected . Prioritize to prepay these less "beneficial debts" when you have these excess cash so you can ease the strain of cashflow in the future or as mentioned you were able to dispose of non-performing assets. It is also a good idea to have an automatic standby credit in terms of shortage in your working capital if you overextend your available cash due to your multiple obligations.

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You're facing cash flow pressures. How can you restructure debt to alleviate them?

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1 Assess Debt

2 Negotiate Terms

3 Leverage Assets

4 Explore Refinancing

5 Plan for Future

6 Maintain Relations

7 Here’s what else to consider

Corporate Accounting

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