Declining liquidity is one of the most significant operational risks, and its impact on businesses tends to magnify, especially during a pandemic. Nonetheless, corporate treasury professionals suggest that improving cash management and liquidity of companies should be prioritised despite its financial performance. However, to stabilise post-pandemic operations, companies need to modify their overall risk management strategies as well.
In case you are finding it difficult to maintain healthy cash flow, you should look for effective ways of improving liquidity. One of the best ways to do so is by identifying the factors that erode liquidity and risks related to it in general.
Before we become familiar with the tips to improve liquidity during and after the pandemic, let’s take a quick look at the significance of liquidity in the business.
Essentially, liquidity can be described as the ability to convert assets or securities quickly into cash or cash equivalents. It serves as a full measure of gauging a firm’s current financial standing.
With that being said, these pointers highlight the importance of liquidity in business –
A firm with a high liquidity ratio projects a healthy image when it comes to financial performance and growth prospect. It helps businesses to draw in more investments or potential business partners. Resultantly, it helps to increase the scope of earnings and boosts growth.
Strong liquidity indicates stable financial standing and creditworthiness to repay the debt on time. This works in favour of business owners when they apply for a loan or other alternative financing options like invoice discounting.
Keeping wealth tied in liquid assets come in handy during a financial crisis resulting from improper cash flow management. Liquidated stocks, collecting accounts receivables, cleared inventory, and returning unused supplies to vendors are among the best ways to boost cash flow.
There are several options that businesses can turn to when it comes to combating liquidity crisis.
The pandemic has exposed businesses to volatile financial markets and uncertainty regarding future cash flow and revenue generation. Firms have been exposed to cash flow challenges like excess inventory, incorrect sales forecasting, insignificant cash flow, receiving delayed invoice payments, etc. that have taken a toll of their liquidity.
To boost your firm’s liquidity, the immediate goal should be to preserve cash. To achieve it, you should startegise an assessment plan to identify the prevailing risks.
Businesses must make it a point to lower their overhead expenses during this crisis and must try to manage the same during the post-pandemic phase as well. For immediate adjustments, business owners should find out the extent of such expenses when it comes to professional fee, rent, marketing, administrative costs, etc. Reducing unnecessary overhead expenditures will allow you to improve cash flow.
Typically, businesses allow 30 to 90 days to their buyers to pay for their invoices. However, to boost liquidity during and after the pandemic, companies should be prompt in collecting accounts receivables from their customers.
However, if businesses find it challenging to collect outstanding invoices on time, they can use unpaid invoices to raise funds and bridge their working capital gap seamlessly. With KredX, you can avail invoice discounting services and working capital within 24 - 72 hours*.
Business owners can negotiate better terms of repayment with their suppliers. They can ask for shorter repayment tenure or a discount on accounts receivables to manage immediate cash flow.
KredX is India’s leading integrated cash flow solutions provider. By availing our invoice discounting services, you can raise the required working capital.