The CFO’s Guide to Managing Corporate Debt

Researchers say over 80% of business failures occur due to a lack of financial resources. Before failing, many of these companies reach various debt agreements with creditors. That means managing corporate debt is one of a CFO’s most important responsibilities. This quick guide shows a step-by-step process you can follow to do that more effectively.

1. Understand the Types of Debt You Have

It’s helpful to start by making a list of each of your company’s outstanding debts. Consider factors like:

• The amount of each loan
• Interest rates
• Repayment terms (as they relate to your company’s priorities especially)
• Collateral required to maintain loans
• Relationships with lenders

This information-gathering process will help you make more informed decisions about repayment, as the following steps show.

2. Prioritize High-Interest Debts

Generally, paying off your company’s highest-interest debts first is wise. Remember, interest is the cost you pay to borrow the capital. Prioritizing high-interest debts will help you pay less in total interest. Over time, that means a higher percentage of your debt repayment capital will go toward paying down principal balances.

You can also look into paying off secured debts sooner if you want to free up collateral. Or, you might have special tax considerations that make it wise to prioritize one type of debt over another.

3. Consider Renegotiating

At this point, you should have a clear view of your company’s overall debt picture and know which debts you will prioritize in repayment. But before you execute that strategy, you may want to try renegotiating some of your debt.

This is easier to do when your business has a strong credit history and good relationships with its lenders. You could leverage those factors to ask for a lower interest rate, extend your repayment timeline, or consolidate multiple loans into one.

4. Set Goals and Track Progress

You’re almost ready to begin paying off the debts you’ve chosen to prioritize — but consider setting some goals first. This will make it easier to evaluate the strengths and weaknesses of your corporate debt strategy.

For example, you might set a goal of fully paying off your corporation’s highest-interest loan within two years. Next quarter, it would be easy to measure whether or not you’re on track to reach that goal.

Without goals, progress becomes more uncertain. For instance, you might plan to pay off your highest-interest debt as soon as possible. That doesn’t give you a straightforward way to measure progress quarter-over-quarter.

Tracking your progress is important because it helps businesses course-correct faster when strategies go awry.

Simplify Your Debt Management Strategy With CFO Hub

Managing corporate debt well is an essential part of running a successful business. But that can be tough to do internally — especially when your CFO is already busy with other important tasks.

CFO Hub can help. We offer financial management services that take the hard work out of dealing with debt. Your CFO will have more time to focus on value creation while our experts set you up with an ideal debt management strategy.

So why wait? Set up a free consultation to learn more about how we can help.