How to Get a Business Out of Debt: A Step-by-Step Action Plan
Your business has debt. Calls from creditors, overdue invoices, arrears with ZUS (social security). What now? This article is a concrete plan: from diagnosing the scale of the problem, through prioritizing repayments, to negotiating with ZUS and the restructuring court. No generalities: real numbers and an example of an actual business.
Table of contents
- Diagnosis: assess the scale of the problem with numbers
- Liquidity problems vs. insolvency: the key difference
- Step 1: Stop the bleeding
- Step 2: Map out the debt
- Step 3: Prioritize repayments
- Step 4: Negotiate with creditors
- Step 5: Restructure your cash flow
- A numbers example: a business with 3 creditors
- What absolutely NOT to do
- Table: debt-relief tools and when to use them
1. Diagnosis: assess the scale of the problem with numbers
Before you start acting, you need to know what you're dealing with. Instinct says "it's bad." The numbers will tell you how bad. Two ratios give a quick picture of the situation:
Debt ratio
Shows what percentage of your assets are financed by debt:
- Below 50%: a safe situation, the business is financed mainly from its own funds
- 50–70%: a watch zone, the business is dependent on creditors
- Above 70%: an alarm zone, immediate analysis is needed
- Above 100%: liabilities exceed the value of assets, technically the business is in a negative capital position
Interest coverage ratio
Checks whether the business earns enough to cover the interest on its debt:
- Above 3.0: safe, the business has a comfortable margin
- 1.5–3.0: acceptable, but with no safety buffer
- 1.0–1.5: dangerous, any downturn in results risks trouble
- Below 1.0: the business isn't even earning enough to cover interest, servicing the debt is impossible without a cash injection
Example of a quick diagnosis
Company X has PLN 800,000 in assets, PLN 620,000 in liabilities, PLN 45,000 in annual EBIT, and PLN 38,000 in interest costs. Debt ratio: 77.5%, an alarm zone. ICR: 1.18, dangerously close to 1.0. Every month 10% worse, and the business stops being able to cover interest. A business like this needs to act today, not next quarter.
2. Liquidity problems vs. insolvency: the key difference
This isn't an academic distinction: what you do next and how fast you need to act depends on it.
Liquidity problem
Temporary. The business has assets, has contracts, has prospects, but is temporarily out of cash for its current obligations.
Typical causes:
- Clients pay with a 90-day delay
- A large contract required an advance payment
- Industry seasonality (construction, agriculture)
- One large counterparty went bankrupt
Structural insolvency
Chronic. The business can't repay debts, not because of a temporary crisis, but because the business model doesn't generate a sufficient surplus.
Warning signs:
- No repayments for over 3 months
- Liabilities exceed assets
- You're regularly losing money on operations
- No realistic chance of improvement
Why does this matter? You solve a liquidity problem with factoring, negotiating repayment terms, selling assets. Structural insolvency requires either a deep restructuring of the business model, or court restructuring proceedings, or filing for bankruptcy. Confusing these two situations and treating a structural problem with liquidity tools ends in a debt spiral.
Step 1: Stop the bleeding, cut non-productive costs
Before you start negotiating with creditors, you need to prove, to yourself and to them, that you know how to stop the cash drain. This isn't about cutting for the sake of it. It's about identifying costs that don't generate revenue.
Where to look for non-productive costs:
- Subscriptions and licenses: audit every SaaS subscription, software license, and cloud service. Businesses lose an average of 20–30% of their budget on tools nobody uses.
- Office space: if part of the team works remotely, excess office space is cash thrown out the window. Subletting or renegotiating the lease can free up PLN 5,000–20,000 a month.
- Inventory and receivables: cash frozen in a warehouse or with clients is also a "cost." Offer clients a 2–3% discount for prepayment: it's cheaper than a loan.
- External services: outsourcing, consultants, marketing agencies. Assess what actually brings in revenue, suspend the rest.
- Company cars and equipment: leases on expensive cars that became a status symbol rather than a work tool. Consider selling and leasing a cheaper equivalent.
The goal for this stage: recover at least 10–15% of current operating costs within 30 days. This signals to creditors that the business is taking the situation seriously.
Step 2: Map out the debt, all obligations in one table
You can't manage what you don't measure. Build a single table with all obligations. For each debt, you need to know:
| Creditor | Amount | Due date | Interest / penalties | Collateral | Status |
|---|---|---|---|---|---|
| ZUS | PLN 48,000 | overdue 3 months | statutory interest (11.5%) | statutory lien | Enforcement |
| Bank (credit line) | PLN 220,000 | due in 6 months | WIBOR 3M + 2.5% | mortgage on real estate | Current |
| Supplier A | PLN 35,000 | overdue 6 weeks | 5% contractual penalty | none | Demand letters |
| Tax Office | PLN 22,000 | overdue 2 months | tax interest (12.5%) | statutory lien | Reminder |
With a table like this, you see at a glance: where enforcement is looming, where interest is piling up, what's secured. This is the starting point for prioritization.
Step 3: Prioritize repayments, the order matters legally
Not all debts are equal. The repayment order should follow from the consequences of delay, not from who calls the loudest.
ZUS and the Tax Office: ABSOLUTE PRIORITY
Public-law creditors have a privileged claim on your assets (statutory mortgage, statutory lien). Arrears with ZUS and the Tax Office grow the fastest (interest of 11–12.5% a year plus possible criminal sanctions). Enforcement against your bank account paralyzes the whole business. Always deal with this first.
Employee wages
Late wage payments aren't just a moral issue: it's a criminal offense (Article 218 of the Polish Criminal Code, up to 3 years' imprisonment). Employees have priority in bankruptcy proceedings. Protecting employees means protecting yourself.
Secured debts (banks with a mortgage, lessors)
A bank with a mortgage on your property, or a lessor, can seize the asset securing the debt. Losing a key piece of production equipment or a property can mean the end of the business. Keep paying these obligations regularly, or negotiate restructuring immediately.
Unsecured debts (suppliers, counterparties)
Suppliers without security have the weakest legal position. That doesn't mean you can ignore them (reputation, future cooperation), but they have fewer enforcement options. This is where you have the most room to negotiate.
Step 4: Negotiate with creditors, arrangements, installments, moratoriums
Creditors usually prefer to get less than nothing at all. That's your leverage. But negotiations need to be conducted actively. Don't wait for the bailiff to show up.
Negotiating with ZUS
ZUS has three tools to help indebted businesses:
- Installment arrangement: you can spread overdue debt over as much as 36 months. You submit the application through PUE ZUS. ZUS can waive interest on the arrears in full or in part, if you repay the principal.
- Deferred payment deadline: if current contributions are paid on time, and you have temporary problems with past debt, you can request a deferral.
- Debt write-off: only in exceptional cases (total inability to pay, proven with documents). Practically unavailable to businesses that have assets.
Negotiating with a bank
Banks are reluctant to advertise it, but they do have restructuring procedures. You can request:
- A grace period on principal: for 3–12 months you pay only interest, the principal is frozen. Typical in a crisis
- An extended loan term: spreading the debt over a longer period lowers the monthly installment
- Loan conversion: turning a short-term credit line into a long-term investment loan
The key to negotiating with a bank: get transferred from the collections department to the restructuring department. Collections enforces. Restructuring looks for a solution.
Negotiating with suppliers
With private creditors, you have the most freedom. Typical scenarios:
- Moratorium: freezing the debt for 3–6 months with no interest accruing, in exchange for a guarantee of repayment
- Haircut (partial write-off): the creditor writes off 20–40% of the debt in exchange for immediate repayment of the rest. "A partial payment today beats a full payment in 2 years"
- Converting debt into equity: the supplier becomes a shareholder in the business. Rare, but possible with large amounts
When to settle with creditors, and when to go to court
A voluntary out-of-court arrangement is enough when: you have fewer than 10 creditors, your relationship with most of them is good, the debt is mainly to private parties. Court restructuring proceedings (the Restructuring Law, 2015) are necessary when: creditors are blocking negotiations, enforcement against key assets is a real threat, you want official protection from enforcement proceedings during restructuring. Court proceedings give you 3–4 months of a "shield," a suspension of enforcement, to negotiate an arrangement with creditors under court supervision.
Step 5: Restructure your cash flow
Even if you renegotiate your debts, without improving cash flow you'll be back at square one within a year. Three tools for restructuring cash flow:
Factoring: cash from invoices without waiting
The business issues an invoice with a 60-day payment term. A factor buys that invoice and pays out 80–90% of its value within 24–48 hours. Once the counterparty pays, the factor returns the remaining 10–20% minus a fee (usually 0.5–2.5% of invoice value).
Factoring isn't debt: it doesn't increase your liabilities. It's a sale of receivables. For a business in trouble, this is often the only financing available, because the factor assesses your counterparty's solvency, not yours.
Debt consolidation
Several different debts (short-term, at different rates) are converted into a single, longer-term loan with a lower monthly installment. Condition: you need assets as collateral, and the bank needs to see a recovery plan. Consolidation doesn't reduce the debt: it spreads it out over time and may increase the total cost. But it eases the cash pressure "here and now."
Selling assets (and sale-leaseback)
Selling non-productive assets (real estate, machinery, the vehicle fleet) generates cash to repay debts. An interesting option: sale-leaseback, where you sell a machine or property to a lessor and immediately lease it back. You get cash (to repay debt), keep access to the asset, and the lease installment is a tax-deductible cost.
A numbers example: a construction business with 3 creditors
Alfa Budownictwo sp. z o.o., 8 employees, PLN 2.2 million in annual revenue. After its main counterparty went bankrupt (a receivable of PLN 380,000), the business found itself in crisis. State of the debt:
| Creditor | Debt amount | Priority | Renegotiation | New monthly instalment |
|---|---|---|---|---|
| ZUS (4 months overdue) | PLN 56,000 | 1: urgent | 24-month installment arrangement, interest waived (PLN 8,400) | PLN 2,333 |
| Bank (working capital loan) | PLN 185,000 | 2: secured | 6-month grace period on principal, extended to 48 months | PLN 4,500 (after grace period) |
| Materials supplier (3 invoices) | PLN 78,000 | 3: unsecured | 25% haircut (PLN 19,500 written off), PLN 58,500 repaid over 18 installments | PLN 3,250 |
| Total | PLN 319,000 | Savings on interest and write-offs: PLN 27,900 | PLN 10,083/month |
Before renegotiation, the business was paying whatever came up on an ad-hoc basis, the sum of installments and demand letters ran PLN 14,000–18,000 a month with interest piling up. After renegotiation: a predictable installment of PLN 10,083 a month, no accruing interest, a 6-month shield from the bank. In parallel: factoring was set up on current invoices, freeing up PLN 45,000–60,000 in cash from 30-day receivables.
The business got out of debt in 28 months without court restructuring.
What absolutely NOT to do
Some businesses in crisis make mistakes that turn a difficult situation into a catastrophe, either financial or legal.
Five things that can destroy you
- Taking out new loans to repay old ones. Payday loans and non-bank loans with an APR of 50–100% are a spiral you can't get out of. Every new debt has to finance something productive, not old obligations.
- Transferring company assets to family or friends. Signing an apartment over to your wife, selling a car to your son for a symbolic zloty: this is a fraudulent transfer (actio pauliana). A creditor can challenge it in court for up to 5 years and reverse the transaction. The management board of a limited liability company risks criminal liability.
- Hiding assets from creditors or the tax authorities. This isn't "risk management." It's a crime. Criminal and civil liability at the same time.
- Failing to file for bankruptcy on time (for a limited liability company). The management board has 30 days from establishing insolvency to file for bankruptcy or open restructuring. Missing that deadline exposes the board to personal liability for the company's debts (Article 299 of the Commercial Companies Code).
- Ignoring creditors and waiting for it to "blow over." The debt grows (interest, enforcement costs, court fees). The creditor loses patience. The bailiff arrives. The business's reputation takes a hit. Act on the offensive: be the first to call.
Table: debt-relief tools and when to use them
| Tool | What it involves | When to use it | Conditions / cost |
|---|---|---|---|
| Factoring | Selling invoices to a factor: cash in 24–48h | A liquidity problem, counterparties pay late, need for cash without new debt | Fee of 0.5–2.5% of the invoice; no credit history required |
| Debt consolidation | Combining multiple debts into one loan with a lower instalment | Many short-term obligations, you have assets to use as collateral, you urgently need to lower your instalment | Requires creditworthiness or collateral; may increase total cost |
| ZUS/Tax Office installment arrangement | Spreading public-law arrears into installments, possible interest waiver | Arrears with ZUS/Tax Office, wanting to avoid enforcement, the business has the ability to pay installments | Application through PUE ZUS or the Tax Office; usually no extra costs |
| Sale-leaseback | Selling an asset and immediately leasing it back | The business has valuable machinery or real estate, needs cash but wants to keep using the asset | Fixed lease instalment; you lose ownership of the asset |
| Negotiating with creditors (haircut) | The creditor writes off part of the debt in exchange for immediate repayment of the rest | Private creditors (suppliers), the business can quickly raise 50–80% of the amount, the creditor doesn't have good collateral | Requires negotiation; success rate: 30–60% of cases |
| Court restructuring | A court-supervised arrangement with creditors, protection from enforcement during the proceedings | Creditors are blocking negotiations, enforcement against key assets is a threat, the business has a chance of survival | Court costs plus a restructuring advisor (PLN 5,000–30,000); proceedings take 3–12 months |
| Bankruptcy | Liquidating the business under court supervision, repaying creditors from the bankruptcy estate | The business has no chance of survival, liabilities significantly exceed assets, no prospect of returning to profitability | End of operations; protects the board from further liability |
Key takeaways
- Diagnose first: the debt ratio and interest coverage ratio tell you how serious the situation is
- Distinguish a liquidity problem (temporary) from insolvency (structural): this determines the tools
- Repayment order: ZUS/Tax Office → employees → secured → unsecured
- Negotiate actively and be the first to reach out, before the creditor goes to enforcement
- Factoring is the fastest way to get cash without adding to the debt
- Never transfer assets to family and never take on new debt to repay old debt
- Limited liability companies: 30 days to file for restructuring or bankruptcy from the moment insolvency is established
Frequently asked questions
A liquidity problem is a temporary situation: the business has assets and prospects, but is temporarily short of cash for its current obligations. Structural insolvency means liabilities exceed the value of assets, or the business hasn't been able to repay debts for more than 3 months. A key indicator: if the interest coverage ratio (EBIT / interest costs) drops below 1.5, the business is starting to have a serious problem.
Yes. ZUS (Poland's social security institution) offers an installment arrangement and a deferred payment deadline: you submit the application online through PUE ZUS. The Tax Office can spread an overdue tax into installments or defer the payment deadline under Article 67a of the Tax Ordinance Act. The key is to submit the application before the matter goes to enforcement. That's when your negotiating options are greatest.
Restructuring proceedings are a court procedure (governed by the Restructuring Law of 2015) that lets a business reach an arrangement with creditors under court supervision. It protects the business from bailiff enforcement while the proceedings are ongoing. It's worth considering when: creditors won't negotiate voluntarily, the debt exceeds what current revenue can repay, but the business has a real chance of returning to profitability.
Yes, factoring is one of the most effective tools for improving liquidity when facing debt problems. Instead of waiting 60–90 days for payment from counterparties, the business gets money from its invoices right away (usually 80–90% of invoice value within 24–48h). This lets it repay obligations without taking on new debt. Factoring doesn't increase debt: it's a sale of receivables, not a loan.
Three things that make the situation worse: (1) Taking out new payday loans or non-bank loans to repay old debts: this is a debt spiral, (2) Transferring company assets to family members or friends: this is a so-called fraudulent transfer, which creditors can challenge in court, (3) Hiding assets from creditors or the tax office/ZUS: this carries criminal liability. If the business is a limited liability company (sp. z o.o.), failing to file for bankruptcy on time exposes the management board to personal liability.
Have real estate? A loan secured by real estate can help you get out of debt on favorable terms.
Check debt consolidation options →