Liquidity refers to your ability to convert assets into cash so that your business can continue trading.
The assets which you can easily convert into cash are called liquid assets. Liquidity can also refer to your ability to pay suppliers and operating costs.
Now, at some point or another, businesses face cash-flow problems. But this shouldn't be seen as your demise, but rather the urgent need for you to address your liquidity or cash crisis.
Here are 5 ways to improve your liquidity:
Negotiate with suppliers to pay them later
If you know that you can't pay your suppliers, give them a call and attempt to arrange paying them on terms that suit your business.
Use a sweep account and earn interest
Use a bank account that automatically transfers amounts that exceed certain levels into a higher interest earning investment option at the end of each business day. On a common note, the excess cash goes into a money market funds.
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Review your overheads and save
Inspect your overhead your overhead costs and see which costs you can eliminate or reduce in order to save money.
Keep an eye on your debtors accounts receivable
Look at which debtors take too long to pay and t of the following steps:
· Place a debtor on a stricter payment method;
· Offer early settlement discounts;
· Stop supplying debtors to avoid making further losses.
Review your stock options and save
Analyse stock turnover rate and ask yourself the following 2 questions:
· Are you holding onto your stock for too long?
· Are you stocking too much at a time when it isn't sold quick enough when sales are not high?
Use this ratio to great an answer into your as to your stock turnover rate.