15 Aug Directors’ Loans – Which Loan Should You Repay First?
A directors’ loan refers to finances taken from the accounts of a firm and cannot be classified as legitimate expenses, dividends, or monthly salaries. The responsible officials have to pay these debts. Before making repayment, company officials ought to ask themselves, directors’ loans – which loan should you repay first?
Some company officials usually have several outstanding finances. They take initial debts and, after that, apply for top-ups, thus attracting a higher rate. Sometimes these debts are overdrawn hence the need to clear them through options such as dividends accrued.
When clearing their debts, company top officials should initially repay the debts that are long overdue. If their loan accounts are overdrawn, they need to clear their outstanding amounts before applying for top-ups.
For overdrawn repayment accounts, companies ought to make follow-ups for full repayment. If such finances are not repaid in time, they negatively impact the operations of firms. They limit the daily operations hindering effective development.
The simplest way to find out which outstanding finances to pay first is by prioritizing the old ones. It is essential for top officials to design a financial plan that will guide their repayments for the effectiveness of the operations of the firms.
To understand the repayments to be given priority, the top officials ought to liaise with the concerned companies. It is important to understand the repayment schedule proposed by the respective firms for timely installments.
The repayment period guides company officials on which borrowed amount needs to be given priority. Sometimes those with shorter repayment duration should be settled first compared to those with a longer period.
To effectively repay their debts, directors can opt to use their salaries. They may apply for a standing order so that the installment amount is directly deducted from their salaries to the bank account of the company.