With interest rates being the lowest they have been for years, many people are happy to borrow money at the moment. Unfortunately, with rates this low there is really only one way they can go and that’s up. So, whether you have personal or business loans, check out these three easy ways to combat interest rate rises.
Deposit payments straight away
Get into the habit of depositing payments you receive into your bank account quickly to minimise your overdraft or pay off a loan. Payments waiting to be deposited or money left sitting in your cash register aren’t working for your business. You could also save time and money by encouraging electronic transfers directly into your bank account.
When in your bank account, these amounts can either reduce your overdraft and save you interest charges or add to your bank balance and earn you interest.
Improve your debt collection
Follow up on debtors as soon as their payments fall due. A friendly follow-up call should reduce the amount of time you wait to be paid. It will also lessen the period you effectively provide interest-free loans to your customers while paying interest on the money you’ve borrowed.
Another way to encourage prompt payment is to present customers with an early settlement discount. Offering a 5% discount for payment within 30 days or a 10% discount for payment on delivery can speed up your debt collection.
Manage your purchases and payments
Like many other small businesses, you may have a lot of money tied up in stock. If you’re able to moderate this by managing your purchases better, you can decrease the amount of money you borrow and the interest charges you’ll have to pay.
A manufacturer can reduce stock levels by ensuring raw materials are delivered a few days before they’re needed, rather than months before – known as “just-in-time” ordering. A retailer can use a similar approach by cutting stock levels and drawing on a supplier’s reserves after each sale.
Talk to your suppliers about your requirements and help them to anticipate your stock needs. They should be able to provide you with an efficient stock servicing solution which will allow you to reduce your stock levels, the amount you’ve borrowed to pay for the stock and the interest you’ll pay.
You can also use your suppliers’ terms of payment to your advantage. If you have credit terms with them, you have access to non-interest bearing credit. Use this as much as possible and ask for favourable terms to reduce the amount of interest-bearing money you’ll need to borrow plus the amount of interest you’ll need to pay.
The amount you’ll be able to save by introducing these small changes to your business could add up to significant savings over a year or two. If you want to protect your business from rising interest rates speak to us today. BSN & Co are experienced business accountants who can help you look at your business cash flow and turnover and help you to plan for the future.