Borrowing can be a sensible tool. It can fund growth, smooth cashflow, and help businesses take on larger opportunities. Problems tend to arise when visibility slips, costs increase, or deadlines are missed.

The aim of managing business debt isn’t to eliminate it entirely. It’s to stay in control, keep headroom, and act early when pressure starts to build.

Below are the key accounting practices that help businesses manage debt effectively and avoid it becoming a long-term problem.

Start With a Clear View of Your Position

The most useful tool for debt control is a 12-week rolling cashflow forecast, updated weekly.

This should show:

• Expected cash coming in

• Expected cash going out

• The timing of both

Once built, stress-test it. What happens if sales drop by 10%? What if customers pay 30 days late? If the forecast shows a pinch point, that’s your signal to act before it becomes a crisis.

Alongside the forecast, keep a close eye on:

• Aged receivables and payables, reviewed by value and age

• Loan covenants, available headroom, and earliest breach points

• A clear calendar of obligations such as VAT, PAYE, Corporation Tax, rent, utilities, and loan repayments

Assign ownership for chasing, negotiating, and paying. A short weekly review turns debt control into a routine rather than a reaction.

Know Today’s Costs and Rules

Debt decisions need to be anchored to current rates and thresholds.

Late payment interest to HMRC is now charged at Bank Rate plus 4%, which often makes tax arrears more expensive than bank borrowing. Statutory interest on late business-to-business invoices is 8% above Bank Rate, plus fixed recovery costs.

Understanding the real cost of delay helps prioritise which debts need attention first and which can be managed through structured agreements.

Prioritise Payments With a Clear Logic

There’s no single correct payment order for every business, but decisions should be based on legal risk and operational impact, not pressure or noise.

A sensible approach often looks like this:

• Tax arrears such as PAYE, VAT, and Corporation Tax

• Secured lending and fixed charges

• Energy suppliers and critical operational suppliers

• Other trade creditors and landlords

• Director or shareholder loans

Whatever order you choose, document the rationale. This makes it easier to explain decisions to lenders, HMRC, and other stakeholders.

Tackle Late Customer Payments Calmly and Consistently

Late payment is one of the biggest drivers of cashflow pressure.

Strong internal discipline helps:

• Keep payment terms short and clear

• Issue invoices promptly and accurately

• Follow a consistent chase rhythm from the due date onwards

• Apply statutory interest where appropriate

• Set sensible credit limits and review them regularly

Partial payment today is often better than a larger promise later. Keep brief notes of conversations and agreed actions to avoid misunderstandings.

Strengthen Cash in the Short Term

When pressure builds, work both sides of the cash equation.

To bring cash forward:

• Focus on the largest overdue balances first

• Agree realistic payment plans and confirm them in writing

• Consider selective invoice finance where debtor quality is strong

To defer outflows sensibly:

• Stage larger supplier payments with agreement

• Switch annual costs to monthly where the uplift is reasonable

• Reduce excess stock and cancel non-essential subscriptions

If funding is needed, choose the right tool for the job. Overdrafts suit short-term swings, term loans fund defined investments, and asset-based lending can unlock cash tied up in receivables or stock.

Speak to Lenders and HMRC Before a Breach

Silence damages confidence. If forecasts show a risk of missing a payment or breaching a covenant, early communication matters.

With lenders, this usually means sharing:

• Year-to-date performance

• A 12-month cash forecast with downside scenarios

• Covenant projections

• A clear, time-bound request such as a temporary reset or payment holiday

With HMRC, it means contacting the Payment Support Service before deadlines are missed, having figures ready, and proposing a realistic Time to Pay arrangement.

Early engagement keeps options open.

Build Habits That Make Borrowing Safer and Cheaper

Debt sits more comfortably on strong day-to-day controls.

Habits that reduce reliance on expensive borrowing include:

• Regular pricing and margin reviews

• Short standard payment terms

• Avoiding single-supplier dependency

• Tight stock and work-in-progress control

• Considering credit insurance for large customer exposures

• Monthly cash and debt reviews tracking key indicators

Small, frequent adjustments nearly always beat large, infrequent corrections.

Final Thought

Managing business debt effectively comes down to visibility, discipline, and timing. When issues are spotted early and addressed calmly, businesses retain far more control and far more options.

If cashflow feels tight or borrowing is starting to feel uncomfortable, it’s worth having the conversation sooner rather than later. Early action protects the business, the people behind it, and the choices available.