Businesses are constantly trying to balance their cash flow with a shifting market. Sometimes, your company will need more liquidity than usual in order to finance new projects. Liquidity is hard to come by, but only if you approach business financing with a closed mind. Increasing your working capital in the short term is easy, but only if you make some changes to the way you run your business. Here are a few tips that might help increase the liquidity of your company when you need it.
Create shorter operating cycles
When you begin spending money to work on a new project, you have only begun your operating cycle. When you receive a payment from a client or customer, the cycle ends and you have renewed funds to use on future projects. Shortening this cycle allows you to quickly utilize your funds for the needs of the company. The question is: how do you shorten the operating cycle?
Don’t wait too long before sending invoices to clients. The more time passes, the longer your operating cycle is, and the more downtime you have in the cycle. Obviously, you can’t always immediately send an invoice. In various industries, you need to wait between two weeks and two months before you can request a payment. Still, send your invoices the moment that you can so that they can be processed and you can use these payments for future needs.
Run thorough credit checks
It’s not uncommon for clients to be unable to pay their debts on time, or at all. This is a common occurrence in many lines of work, but it’s something that can be avoided with a bit of forethought. If you check out their credit scores, you’ll have a good idea of whether or not they can pay for your services or products.
Bad credit scores are a surefire sign that your accounts receivable will be impacted. If clients are unable to pay their bills, who’s to say that they will be able to take care of their debts? This is precisely why so many businesses check client credit scores beforehand. If the scope of your order is extensive, the client will need good financing to be able to finance it.
On the other hand, not all clients should be treated the same, as this would reduce your earnings. If you’re seeking new clients, lower credit limits might help you engage with more of them. Once you have the following you need, weed out individuals that are least likely to pay for the services on time.
Collect debts efficiently
Many clients will have the funds to pay for your services, but they will simply refuse to do so for one reason or another. In these scenarios, you’re faced with a difficult situation. Unpaid invoices lower the business’s liquidity and this makes it difficult to pay employees on time. The accounting department should pay close attention to all accounts that are past due.
Every business should aim to collect these outstanding invoices one way or another. If frequent reminders and warnings aren’t working, consulting a reliable debt collection agency might be more helpful. Instead of having to argue with the client yourself, you can have the collection agency resolve the issue. This way, your invoices get paid and you can invest them in projects and improvements for your business.
Lease equipment and unused spaces
No business works at 100% efficiency. There is always some amount of downtime where your assets aren’t being utilized. If your business hours are during the daytime, all of your equipment isn’t being utilized during the night. This is a potential source of additional profit and liquidity that is worth taking into consideration. If another business can make use of your equipment, leasing it would be your best course of action.
This doesn’t just apply to equipment and machinery, either. It’s very likely that your office or work area isn’t constantly in use. These kinds of spaces are very much sought after, and businesses would be clamouring to rent them during your off-hours.
If you can’t find these businesses, selling and renting parts of your space to a leasing company is another viable solution. It’s a solid cash boost that wouldn’t necessarily affect your normal work hours. This would nearly instantly liquidate assets that would normally take a while to utilize, which makes for a very compelling strategic move.
There are countless ways for businesses to increase their liquidity and provide more quick cash flow for important changes. While some of these moves might seem drastic at first, they are a normal part of doing business. If you’re running low on funds and want to increase the liquidity of your business, consider utilizing some of these methods. You’re sure to be satisfied with the results.