loader image

Debt is a common tool for boosting SME growth. However, poor debt management can quickly threaten the survival of the SME. That’s why it’s so important to keep a close eye on your various debts, so you can make the most of them. To help you manage your SME’s debt, our experts have compiled a list of best management practices.

What is SME debt?

Before you know how to manage your SME’s debt, it’s important to understand what it means. Indebtedness refers to the accumulation of debts, i.e. the sums owed by a natural or legal person to a creditor. For an SME, indebtedness is often linked to investments requiring long-term receivables. However, it’s not limited to bank loans.

There are different types of debt for an SME, such as short-term operating debts, tax and social security debts, short- and long-term bank loans, and so on.

Although debt can be perceived negatively, it is often necessary for a company’s development. On the other hand, it is important that the return on investment is higher than the cost of borrowing, because over-indebtedness is the real danger for an SME, and the line between tolerable debt and over-indebtedness can be a fine one. Keeping debt under control is crucial to your company’s financial health.

Draw up a cash flow forecast

The first step to managing your company’s debt is to ask yourself whether taking on debt is the right option for you. As every SME is unique, there is no universal model. It’s important to analyze your current situation and anticipate your plans and prospects. You need to determine whether you need a loan or whether you can finance your investments by other means.

To help you answer these questions, consult your accountant.

Draw up a realistic budget forecast

Indeed, having a professional help you draw up a realistic budget for your business is a sound financial management practice for an SME. A chartered accountant can help you draw up a realistic budget, taking into account your company’s expenses and revenues. Based on credible, achievable assumptions, he or she will be able to provide you with a clear vision of your finances and determine the level of debt your business can bear. This will enable you to better manage your debts, avoid unpleasant surprises and make informed decisions. In short, you’ll have understood that professional advice is essential.

Avoid taking on more debt than you can repay

As the head of an SME in Canada, it’s crucial to establish a realistic budget for your business to better plan debt management. This will enable you to forecast your SME’s expenses and income, and better manage debts. It’s also important not to borrow more than your business can repay without jeopardizing its financial health. Taking on debt beyond your ability to repay can have disastrous consequences for your business, such as late payments, penalties and reduced creditor confidence.

To avoid this, you can enlist the help of a professional to draw up a realistic financial forecast for your business. Based on credible, achievable assumptions, a professional will be able to provide you with a clear vision of your finances and determine the level of debt your business can bear. This will enable you to manage debt more effectively, avoid unpleasant surprises and make informed decisions.

Negotiate repayment terms with creditors

Negotiating repayment terms with creditors is another essential practice for effective debt management. Indeed, this practice enables SMEs to better manage their repayments and avoid late payments, which can have a negative impact on their cash flow and reputation with creditors.

When negotiating repayment terms, it’s important to consider several key elements, such as the loan amount, the interest rate, the repayment period and the guarantees required by creditors. It’s also important to discuss repayment terms, such as the repayment schedule and the possibility of early repayment.

For example, suppose your company needs a loan to finance the purchase of new equipment. You can negotiate with your creditor to obtain a more advantageous interest rate or a longer repayment period that will better suit your company. You can also discuss repayment terms, such as the possibility of prepaying the loan if you have additional funds available.

Regular debt monitoring

Imagine that your SME has taken out a short-term loan to finance an unforeseen expense. By regularly monitoring your debts, you can identify this short-term debt and plan to repay it in due course. Alternatively, you may decide to borrow on a long-term basis to avoid cash flow problems and high interest rates.

Regular debt monitoring is a key practice for effective SME management. It enables companies to better anticipate periods when they may need to borrow, and to better plan the management of their debts.

When you monitor your debts on a regular basis, you can gain an overview of your financial situation and be in a position to make informed decisions about future borrowing. You can also identify short-term debts that could be avoided, and long-term debts that would be better suited to your SME.

Short-term debts should be avoided as far as possible. They can lead to cash flow problems, high interest rates and late payments, all of which threaten the long-term viability of your business.


Sound practices are essential, even crucial, for good debt management in a company. This helps avoid over-indebtedness or the negative scissor effect. It’s advisable to turn to professionals for the technical aspects and the support your SME needs.

Alicia Gomez - Senior Content Manager | Alicia is an author, blogger, and certified Enneagram coach with a bachelor's in Communications. She's been blogging for six years and run a consulting business offering communications, strategy. Her favorite quote: Be you. Break free. Break through.

Leave a Reply

Your email address will not be published. Required fields are marked *