Liquidity Solutions

Written by James Kitchens
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Different businesses will be looking for loans for different reasons. Some need cash to finance a business start up, some need to buy essential equipment, and others may need to make improvements to their business premises. In many cases though, a loan becomes necessary even when a business has all its essentials and is operating well, because operating funds are short or completely lacking.

No matter how many other resources a business has in place, if there is no cash flow then that business is in trouble. In an ideal situation, a business will always have enough cash to meet all of its obligations. In reality, lots of things can stand in the way of optimum liquidity.

Often, customers will take goods and then delay paying for them. In some areas of business this is standard practice. It can leave large gaps in a company's operating cash though. Whereas several major customers may be late paying up, no business will be able to solve its problems by paying salaries late, for example. Bills need to be paid promptly.

Tips for Keeping Your Company Liquid

So what are the solutions when liquidity is limited by factors outside your control? To begin with, think about a system that will encourage your customers to pay up in a timely way. Consider giving an early payment incentive; the prospect of a slightly smaller bill if payment is made within a week will often mean that payments are forthcoming immediately.

Setting up a cash reserve to carry you through times when your outgoings are higher than your income should be priority. In the meantime, you may need to take out a liquidity loan to bridge the financial gap, but it's essential that you take steps to make sure that this situation does not become a common occurrence. Remember that the main reason why companies go out of business is not lack of business, but lack of liquidity.

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