Liquidity is crucial for any business. A lack of liquidity indicates that a company is not able to convert assets into cash when required. Less liquidity also means that a business cannot buy or sell its assets without negatively hampering prices. Cash is always required to run a business because running on credit is not a long-term solution. So, people often say that liquid assets are the lifeline of any business. Liquid assets also help to withstand the pressure from any emergencies that may arise.
Here are some ways to improve the ratio of liquid assets in your company:
Submit invoices to customers early
The earlier the invoices are submitted to the customers, the faster payments are received for goods and services. This step helps to improve the liquidity ratio of your business. You may have to work very hard to get the customer to pay early, but this helps in the long run. Also, remember to pay off your liabilities as early as possible, especially the ones that can be cleared easily. Early payment of dues helps improve the liquid assets of your firm.
Use long-term debt instead of short-term debt
Long-term debt always works in favor of your business because it has lower interest rates and smaller monthly installments. As compared to short-term debt, you would not need to pay off the principal amount immediately. The elimination of short-term debt helps boost the liquid assets of your company and allows for these assets to be invested in better ways in the immediate future.
Do not retain non-performing assets
There are assets that do not perform in any sphere that the organization works in. If a resource is not helping the growth of your business, do not hold on to it. Sell it off for the best price it can fetch you. The sale of such assets helps in several ways. For one, you do not have to worry about a depreciating asset. Secondly, your current ratios start looking good. Lastly, and most importantly, your cash balances go up immediately. All of these work towards building good liquid assets.
Keep a check on overhead expenses
Understand and control the amount that you are spending on overhead costs like rent, maintenance, marketing expenses, and so on. Short-term expenses will automatically go down when these are taken care of and budgeted well. You will be able to retain more cash through savings, and your company’s liquid assets will increase.
Try to get longer payment cycles
Talk to suppliers and vendors with whom you have done business for a long time and see if they can work with longer payment cycles. Also, check if they can offer you discounts due to the long working relationship you have with them. This step will help you raise the liquid assets your company has in hand at any given point of time.