Tips to Manage and Improve Liquidity
The best way to measure liquidity is quick, current ratio and acid test ratio. The liquidity position of the company can be automatically optimize if these ratios are optimize. Requirement of short term loans is the appropriate ratio to calculate the liquidity.
For increasing portability, it is necessary to focus on the liquidity of your business. In order to do that, you need to understand the 3 common techniques that are use to liquid your business in a better way.
1. Cash Concentration
The movement of funds and assets from member accounts to a liquidity position. Zero balancing structure is also known as cash concentration. This means making your credit and debit account to zero at the end of the day.
2. National Pooling
Both the credit and debit balances are virtually counter balance. As the credit balance cancel the debit balance, an increase credit interest will be achieve by the company. This will then diminish a debit interest.
3. Interest Enhancement
This technique is much similar to national pooling. In this method there will be no physical movement of funds. The main thing adapting this method is that you will always need to adhere to the bank. Furthermore their regulations as well, regarding the interest that will be return for the account.
As you know that liquidity is the ability of your company to pay bills as they come due. You must have heard the famous saying “cash is king”. So let us know how to improve liquidity to earn more cash in your business. Following are the several ways that should be kept in mind to improve liquidity.
Always try to minimize overheads. Evaluate your overheads first and then go through them. This is to check if there are any opportunities to minimize them. By reducing overhead, profitability increases. Overhead minimization has a direct impact on profitability.
2. Unproductive Assets
If your business has some unproductive assets that have no impact on profit and loss, then it is a time to eliminate them.
Take a look on the profitability chart of various services and products. Why? This is to evaluate where the prices are increasing on a daily basis to maintain profitability. Note that as soon as your costs increase and market changes then prices may also need to be adjusted as well.
4. Accounts Receivable
In order to ensure that you are billing your clients and also that you are getting prompt payments, you will need to monitor accounts receivables efficiently.
5. Owner’s Draws
Monitor the owner’s draws. That is the money that is being taken out for non-business and business purposes. If the excessive amount of money out of the bank can put a drain on the company cash state then you will need to stop or reduce these withdrawals.
Do you own a company or running your own business? Are you in need of cash for your daily operations? Best Credit SG Pte Ltd (Formerly known as Cing Dien Credit) has been a licensed moneylender in Singapore for more than 30 years. If you are in need of cash for your business needs, we will definitely be able to work something out to help you. Contact us at +65 6272 5538 or visit our office at Blk 372 Bukit Batok Street 31 #01-374 (Level 2) Singapore 650372.