Well-Managed Business Debt Doesn’t Have To Be a Bad Thing
As a company that specializes in debt factoring services, we deal with business debt every day. It is in our firm’s DNA. Over our many years in business, we have come to appreciate that business debt doesn’t have to be a bad thing. As long as it’s well-managed and kept in the proper perspective, business debt can actually be a sign of a healthy organization.
It helps to think of business debt from two different perspectives. As a business owner, you are dealing with both debt owed to you and debt you owe to others. In business, we call these two types of debt account receivables and account payables. We assume you are familiar with both terms.
Both types of debt can be viewed either positively or negatively. How they are managed tends to impact a business owner’s view. But interestingly enough, our position as a debt factoring company offers a unique viewpoint: that of a neutral third party whose business is factoring debt.
Debt You Are Owed
The debt you are owed is the result of providing goods or services to your customers. They buy from you, you generate an invoice, and you expect payment within a certain amount of time. A debt exists for as long as the invoice remains unpaid. This is neither good nor bad. It is just the reality of doing business.
It’s possible to manage invoice debt so that it doesn’t become a problem. Companies do so by:
- sending out regular invoices
- establishing and sticking to terms
- following up on unpaid invoices
- working with customers struggling to pay.
Managing unpaid invoices successfully keeps the accounting team happy, helps to maintain consistent cash flow, and encourages customers to keep buying. It also opens the door to debt factoring.
The debt you are owed is represented by invoices. In a debt factoring scenario, you sell unpaid invoices to a company like Thales Financial. We pay a certain percentage up front and the rest once invoices are paid. Of course, we deduct our factoring fee. Nonetheless, managing your invoices well opens the door to a rather convenient short-term financing tool.
Debt You Owe
Just like you generate invoices representing the debt customers owe, you receive invoices from vendors from whom you have purchased. Those invoices represent debts that you owe. Once again, this doesn’t have to be a bad thing.
First off, the fact that vendors are willing to extend a certain amount of credit gives you options for financing purchases without having to exhaust your cash resources. You can purchase now and pay 30 or 60 days down the road. That is a good thing. Could you realistically run your business if buying on credit were not possible?
On the other hand, being overwhelmed by debt load is possible when a company spends more than it’s taking in. A continual stream of negative revenue can lead to unhealthy borrowing practices that only make debt loads larger and more cumbersome. This is why managing debt load is so important.
Debt Is a Part of Business
Here at Thales Financial, we tend to think of debt as a neutral thing. It is neither good nor bad in and of itself. What makes it good or bad is how companies manage it. How is your company doing with both the debt you are owed and the debt you owe to others?
In terms of the former, you can turn that debt into cash by taking advantage of debt factoring. If debt factoring can help you manage your debt better, we encourage you to consider it over other forms of business financing.