It is important for your business to have good liquidity. In this article we’ll take a closer look at how you can improve liquidity.
Liquidity is important for your business as it measures the business’s financial health. A business that has good liquidity is able to pay bills and cover unexpected costs quickly.
See also: The ultimate guide to liquidity and cash flow.
Let’s take a look at some practical tips for how to improve liquidity.
Send your invoices immediately to improve liquidity
The most important way to ensure good liquidity is to earn money. If you don’t have a cash register or point of sale system, you need to send out invoices to get paid for your products and services.
Make it a habit to send invoices immediately after you’ve delivered the service or product. With the
free invoice software from Conta, you can send invoices for free.
Send payment reminders
If your customers don’t pay on time, make sure to send out proactive payment reminders as soon as possible. Maybe they’ve just forgotten to pay, and by gently reminding them you can receive payment shortly after. We’ve written about how to handle overdue invoices.
Make a budget
Budgets are a great tool when it comes to managing your finances and your company’s cash flow. You should have a liquidity budget and a result budget.
A liquidity budget is a type of planning budget, where you estimate how much money you will earn and how much you will spend. It’s a good idea to have a surplus of assets, in case of unexpected costs, and with a liquidity budget you can plan for that.
A result budget shows your costs and your income. With this budget you’ll see if your business earns money and it’ll give you an idea on how much tax you need to pay.
Download our free budget template.
Cut costs to improve liquidity
Get a good overview of your expenses. Maybe you can save costs by downgrading to cheaper solutions or by cutting expenses entirely? This can save you a substantial amount of money. ou could, for instance, switch to free invoice software such as Conta.
Have good supplier relationships
Make sure you have a good relationship with your suppliers. This can help you negotiate extended payment terms or increase credit limits. A strong supplier relationship can significantly improve your cash flow management and improve liquidity.
Optimize inventory management
Make sure you don’t have a large inventory to tie up capital. If you map out your inventory needs, you may be able to cut out unnecessary inventory and ensure that your resources are allocated wisely.
