If you want your company to do well, then the liquidity ratios must be favorable. Basically, you need cash to run a business, as not everything can be bought on business. Vendors and suppliers don’t like to wait long to get their payment for the goods delivered.
Without liquidity, you lose credibility, so fewer and fewer companies and individuals want to cooperate with your firm. Luckily, there are numerous methods to increase company liquidity and it depends on your preference, your company’s structure, and the market situation which ones will suit your business enterprise best.
Curb your overhead expenses
Do a bit of research to determine how much you spend on the lease, labor, legal fees, marketing campaigns, etc. Once you conduct an in-depth analysis you will realize how many of these overhead expenses are actually unnecessary.
Cutting these expenses even slightly will result in an overall increase in the funds you have available. In some cases, this means buying 19 instead of 20 bundles of copy paper if you notice that your employees don’t need more. The more cash you’re able to retain in the business will dramatically increase your liquidity.
Make the transition from short-term to long-term debt
If you turn to long-term debt, you will have smaller monthly installments and be able to negotiate lower interest rates. Getting rid of short-term debt will instantly affect your balance sheet, granting you access to more cash at any given time. The snowball effect of this measure also includes an improves credit rating, as more money you have on your balance sheet, the bigger are the loans that banks will grant you.
Submit invoice as early as possible
For companies that have a lot of customers and who need to issue a lot of invoices on a daily basis, it is often hard to stay on track. The administration gets swamped up and they issue invoices late, so customers don’t get a chance to pay on time or even better, early.
When customers pay early, your liquidity will increase fast and when the numbers add up, you will have gained a lot by just sending out invoices in a timely manner. In fact, this segment of doing business is so important that you shouldn’t hesitate from hiring extra staff just to get the invoicing done on time.
Hire a debt collection agency
Speedy invoicing will only take effect if your clients are actually willing to pay. We presume that most of your buyers are individuals and companies that aren’t out to trick you but there is always a small percentage of companies who are constantly late with payments or unwilling to pay.
Even if such fraudulent businesses comprise a fraction of your operations, these figures can hurt your liquidity. In such instances, hiring a debt collection agency is more than profitable, as collectors will pump thousands of dollars back into your company. If you’re lucky to find professional and diligent collectors, they will be able to find debtors whom you have forgotten completely about and get back the money you have been waiting for years.
Are you using all your assets?
Any good economist will tell you that simply owning something doesn’t translate into being rich, as your assents need to yield profit. Unproductive assets are among the major factors that make companies lose money.
For example, if your company owns a warehouse that isn’t currently used, you will end up paying maintenance and actually losing money instead of making it. Too many of these unproductive assets can even bring your balance sheet in the red, even if you are doing well financially.
In the example of the warehouse, you can either rent it out to another company that needs extra storage space or sell it. The latter option is better because you will get a huge financial injection, increasing our company liquidity instantly.
Of course, these assets don’t have to be real estate, as even a copy machine out of use is costing you money every month. To sum up, make sure every asset you own is actually being used to generate profit. Otherwise, your liquidity levels will take a hit at the end of every fiscal quarter.
Work out longer payment cycles
Just like you, most companies you do business with like to get paid as soon as possible. However, there are always enterprises that aren’t that keen on getting paid quickly, so this fact to negotiate longer payment cycles.
The longer the payment cycle, the more money will stay in your company and you will keep all your clients happy at the same time. If you’re a savvy negotiator, you can even get them to give you discounts in regard to the quantity of goods and services you purchase.
Increasing company liquidity isn’t an exact science. In fact, it is a combination of all of the factors listed above and it is your business estimate when you will use the tools at your disposal. Sometimes longer payment cycles are the right way to go, while at other times, debt collector agencies are a necessity.