Deleveraging is the process of paying back debt in order to reduce the risk of default. This is most critical when management finds that the firm is in danger of not generating enough cash flow to meet its debt repayment obligations. This situation is especially common when economic conditions are declining, which drives a decline in sales. There are several ways to deleverage, which include the following ways to raise cash:

  • Sell off assets
  • Sell off an operating unit
  • Sell shares in the business
  • Lengthen payment terms to suppliers
  • Shorten credit terms to customers
  • Accelerate the turnover of inventory

Related Courses

CFO Guidebook 
Corporate Finance 
Treasurer's Guidebook