How to manage business debt

business.gov.au's first step for a business in debt is to assess its debts and the money owed to it, and it suggests a record keeping system to keep track of the financial position. Its glossary uses debt for any amount you owe, bills and loan repayments included, and a creditor is anyone you owe money to, such as a supplier or a lender.

Bring the books up to date before you start, because a debt the books don't know about can't be planned for. Enter every supplier bill you have received, reconcile the bank, credit card and loan accounts to their latest statements, and check for anything owed that has never been billed or written down, such as an informal loan from a family member.

A debt register brings every debt onto one page. Keep it in a spreadsheet beside your books and update it every time a payment is made or an arrangement changes.

Alongside it, list the money customers owe you, oldest first. business.gov.au suggests contacting customers who are late or haven't paid, because collecting what you are owed helps you pay your own debts.

business.gov.au suggests working out which debts you can pay now, which can wait, and when a payment plan is needed, and says a budget can help you plan where the money goes.

Note on the register which debts are secured, and keep the security details from each loan agreement with it. The order in which debts are paid depends on the business's circumstances, and your accountant or a financial counsellor can help you weigh it.

business.gov.au says speaking to creditors early can head off late penalties or calls from debt collectors. When you talk to them, it suggests that you:

• explain your circumstances
• ask whether they have hardship provisions
• ask about extending the due date, paying part of the amount or going on a payment plan
• keep a record of the conversation.

In the books, a payment plan usually changes when a debt is paid rather than how much is owed; if a creditor accepts less or adds fees or interest, ask your accountant how to record it. Keep the original bill open, record each instalment against it as it is paid, and file the written confirmation of the arrangement with the bill. Put the new due dates on the register and in your cash flow forecast.

If a creditor has passed the debt to a debt collector, business.gov.au notes there are laws the collector has to follow, and points to Moneysmart's guide to dealing with debt collectors and the ACCC's information on debt collection.

business.gov.au suggests talking to your bank about your finances and explaining what you have done so far. It suggests preparing a profit and loss statement or a cash flow forecast first, because these show the bank the issues the business is facing and can help when applying for financial hardship.

Up-to-date books make both reports quick to produce. If you can't reach a solution with your bank, business.gov.au points to the Australian Financial Complaints Authority.

business.gov.au describes financial counsellors as a free, confidential and independent service that can help with current money problems and planning ahead. It lists:

• the Small Business Debt Helpline, a free service for small business owners in financial trouble, staffed by qualified financial counsellors, by phone or live chat
• the National Debt Helpline, where you can talk to a free financial counsellor by phone or live chat
• Mob Strong Debt Help, a free legal advice service on money matters for Aboriginal and Torres Strait Islander people across Australia
• the Rural Financial Counselling Service, which provides free, independent counselling on finances to people in farming, fishing and forestry and the small businesses linked to them.

business.gov.au also points to the Moneysmart website for finding a free and confidential financial counsellor near you, and to mental health support services, because managing debt can be stressful.

business.gov.au lists finding it hard to pay suppliers or debts, and relying on borrowed money to keep operating, among the signs a business is in financial trouble. It suggests reviewing and updating your financial records every week so problems show up early.

• Update the debt register each week and check its balances against the books.
• Reconcile loan and card accounts to every statement, so interest and fees are counted.
• Keep the cash flow forecast current, with every agreed instalment in the month it is due.
• Get each new arrangement confirmed in writing, and file it with the bill it covers.