Debt Management Policies & Guidelines

Debt management policies and guidelines provide a window into how a business goes about reviewing its liabilities, discussing better terms with lenders and reassuring external financiers about its economic soundness. These guidelines cover everything from the way the company raises funds on financial markets to how it keeps enough cash in its coffers to repay creditors.

Financial Analysis

Financial analysis leads to debt issuance and repayment -- and, as such, is integral to liability management. This review enables a business to delve into its operations and determine its overall liquidity position. Here the question is not only to gauge the company's cash balance, but also to evaluate whether it really needs to borrow. Management may not want to give much ground, money-wise, and would rather use company cash to finance operating activities than borrow.

Debt Issuance

Debt management policies and guidelines give pointed importance to the way a business goes about borrowing. After determining that it's relevant to seek external cash, the organization must reach out to investment bankers and lenders. Generally speaking, much of debt management's allure often comes from the opportunity to work with bankers, evaluate conditions on credit markets and choose the best time a borrower may seek financing. Debt issuance policies include going to private financiers or public investors and explaining why a company's economic condition merits financiers' renewed attention.

Loan Proceeds Usage

A company sets appropriate guidelines to manage debt proceeds, preventing the perception that management is not adeptly administering the corporate cash. These guidelines run the gamut from liquidity management and fraud prevention to the preparation of periodic statements of cash flows. These reports detail how department heads are using loans to strike operating deals, break the profitability impasse and steer company business to financial prosperity. Specifically, a statement of cash flows how much money an organization spends on operating, investing and financing activities.

Debt Repayment

Debt repayment is important if a corporate borrower wants to keep on capturing its share of the lender pie. If the business doesn't formulate sound debt management policies to settle its liabilities on time, it may experience creditor defection and investor exodus. These policies include creating an accurate loan amortization table, consulting with investment bankers to lower money costs, making remittances in accordance with loan covenants, and keeping sufficient cash to avert or fade a possible perception of near-insolvency.

Financial Accounting and Reporting

Debt management procedures indicate to bookkeepers how to record debt transactions in accordance with major accounting pronouncements. These include Financial Accounting Standards Board guidelines, international financial reporting standards and U.S. Securities and Exchange Commission directives. Financial managers record debts in corporate balance sheets.

References

• Credit Research Foundation: Ratios and Formulas in Customer Financial Analysis
• Joint Base McGuire-Dix-Lakehurst: Experts Say Debt Management Crucial to Financial Success
• City of San Diego: Debt Management Policy & Plan of Finance
• U.S. Department of Agriculture: Financial Management and Ratio Analysis for Cooperative Enterprises
• Debt Leap: Debt Management Training Levels and Tips
• U.S. Treasury Department: Debt Management Services