What are some common reasons businesses get into commercial debt?

Commercial debt is created when one business owes money to another. This type of debt can come from a number of different places, including business loans, or lines of credit. However, most often it derives from unpaid services and overdue invoices. In this blog post, we will discuss some common reasons businesses get into commercial debt and how to avoid them!

What is commercial debt?

Commercial debt is between business entities and derives from unpaid services or goods or failure to perform obligations under a contract. In order for the commercial debt to exist, there must be a valid and enforceable contract between the two businesses. This type of debt is different from consumer debt, which is defined as any debt incurred by an individual for personal use.

Why do businesses get into commercial debt?

Both businesses and individuals as well as government organisations can all amass commercial debt. It could come from taking out loans, unpaid invoices, or even owing money from a court case. If a debtor doesn’t repay their creditors on time, the creditor has several legal methods of getting their money back, including through commercial recovery agencies.

Recovering debt from an unwilling debtor may be a lengthy and difficult process, but it is feasible if you follow the proper procedures.

What are some common reasons businesses get into debt?

There are a number of reasons why businesses might get into debt. Some of the most common ones include:

Loans – On certain terms such as interest rate and repayment period, the creditor offers the debtor some quantity of money for free with the understanding that they will comply.

Unpaid Invoices – When one party has given items/services but hasn’t received payment, it’s known as delayed or late payments.

Debts arising from Court Judgments – When a company has been taken to court and the court determines that it must pay a sum of money, such as compensation.

Poor financial forecasting – Businesses often don’t plan for unexpected circumstances such as extra staff or a rise in utility prices with the knock-on impact of unpaid invoices.

Lack of cash flow management – When a company’s cash flow is negative, this is when incoming funds from clients are far lower than necessary to meet outgoing costs like salary and rent.

Unclear contracts or invoice terms and conditions – These contracts should outline the terms of the agreement between the two parties, including payment terms, deadlines, and what will happen if either party breaches the contract.

No invoicing tracking – Having a system in place to track invoices will help you to ensure that you are paid on time and can chase up any late payments quickly and efficiently.

Not keeping on track of cash flow – For forecasting for any potential problems. Keeping track of business cash flow can help you to avoid any nasty surprises down the line and will enable you to take action quickly if necessary.

How can my business get out of commercial debt?

If your business is struggling with commercial debt, there are a number of options available to you. You could:

– Improve your business credit control process – Sending invoices as soon as you have delivered a product or service and regularly following up on those invoices, can ensure faster payment.

– Try to negotiate with your creditors – This involves trying to reach an agreement with your creditors about how and when you will repay their debts. This can be a difficult process, and you will need to be prepared to provide evidence of your financial situation and offer a realistic repayment plan.

– Instruct a debt recovery agency –  Chasing late paying customers takes a huge amount of time and resources away from businesses. By engaging with My Debt Recovery, we can take the stress away and allow you to refocus your attention back on what you do best, growing your business.

Commercial Debt Recovery with My Debt Recovery

Commercial debt can be a difficult thing to manage. However, by taking some simple precautions, you can avoid commercial debt from impacting your business. Speak to a professional about the best course of action for your specific situation.