Liquid assets are resources your company owns that can be quickly converted into cash. One example is bank deposits.
Liquid assets are very important for the financial health of a business because they provide quick access to cash. Cash itself is the most liquid asset, as it can be used to cover payments to suppliers, wage costs, loans and other liabilities
Other examples of liquid assets are bank deposits and stocks.
Liquid assets are important
Liquid assets are even easier to convert into cash than current assets. Current assets are expected to be used within a year, while liquid assets can be used immediately.
Having enough liquid assets can be called having good liquidity. Liquidity is the ability your business has to pay bills, fixed expenses, and unforeseen expenses. Having good liquidity is important for the long-term wellbeing of your business.
Good liquidity is also important for your employees, stakeholders, shareholders and clients.
If you’re not able to cover your liabilities, you will most likely struggle to keep your business going over time.
See also: The ultimate guide to liquidity and cash flow
How to improve liquidity
Get an overview of your liquid assets
Separate your liquid assets from other assets, such as current assets, intangible assets and fixed assets. Once you have an overview of your assets and their status, it’s easier to manage your company.
You can then set up a liquidity budget to get an overview of your liquid assets and expenses and ensure that you have the necessary funds.
Earn more and pay less
Increase profits by looking into raising your prices and cutting costs—for example by switching to free invoicing software This can help you ensure a steady stream of cash coming into your business—and importantly also reduce your cash outflows.
Consider selling your invoices
Look into invoice sales or factoring. Invoice sales is the process of selling one-off invoices to a bank or financial institution. They pay you the outstanding amount immediately, for a small fee. Then they have the responsibility to follow up with customers to ensure the invoice is paid.
Factoring is the same process, but on a larger scale: You sell all of your invoices to another company.
As a smaller step, you can always set shorter payment deadlines on your invoices, to ensure you’re paid quicker.
Reach out to your bank
It’s always worth reaching out to your bank to see if you can get a larger overdraft, or to cut the interest rates on your loans.