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9 Essential Ways to Improve Liquidity for Businesses
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Discover essential FX hedging strategies and currency management best practices from our foreign exchange experts.

9 Essential Ways to Improve Liquidity for Businesses

30 September 2014
·
3 min read
Agustin Mackinlay
INDEX

Liquidity is your company’s ability to pay its financial obligations in a timely manner on a continuous basis. Your company must be able to convert liquid assets into cash in order to meet its liability payment obligations.

We look at 9 essential ways to improve liquidity for SMEs, including tips for accounts payable and finance best practices.It is a vital process for any company and one that is increasingly important to treasurers today, for reasons including increased difficulties in obtaining bank credit, higher risk exposure and an increased amount of company resources necessary to meet regulatory framework obligations.You must ensure that your firm’s total liabilities are met or exceeded by its cash flow. If not, there are a number of measures that you can take in order to increase liquidity.

1. Optimise your accounts management

Accounts payable if poorly managed can severely damage your company’s liquidity. Renegotiating your accounts payable to pay in instalments and with greater intervals if possible will certainly help. Less sizeable amounts will be due, and with less frequency. Scrutinise your regular outgoings and decide if you really need them. You may be surprised at some of your business payments for services or products which do not serve your company in the way they once did.If you regularly or even sometimes incur charges for late payment, make paying on time a priority. Not only does it create gridlock for your cash flow, but also it can irritate your business partners and suppliers, and it diminishes your reputation as a good company with whom to do business.Some of the financial services and products you pay for can almost certainly be reduced. As mentioned in point one, the alternative finance sector is growing in stature, mainly as services that traditionally come from banking, such as loans or a stellar FX management system are offered with competitive rates, transparency and what is largely seen as a technological edge.

2. Diversify funding sources to hedge against a market downturn

Look for funding from a number of sources. Take the 2008-9 crisis as a lesson. Countless companies reliant on bank credit before the crisis either went out of business or at best had to seriously scale back their operations due to the subsequent lack of bank credit.

Consider share programs, venture capitalist funds and the alternative finance sector as well as keeping a cash reserve if possible.

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Agustin Mackinlay
Agustin Mackinlay is a Financial Writer at Kantox. He has previously worked at an investment bank specialising in Emerging Markets. Agustin teaches several courses in Finance at LaSalle University and EAE Business School in Barcelona. He holds degrees from the University of Amsterdam and from the Kiel Institute of World Economics in Germany.
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