5 ways small businesses can address liquidity problems


One of the fundamental principles of modern management is “Cash is the King”. This term is becoming even more relevant lately since one of the key challenges facing most small and medium-sized businesses today is the reduced liquidity. Even if a business is profitable, a serious liquidity problem is almost certain to lead to a padlock. The decline in demand over the years of the crisis, the reduction in lending to small and medium-sized enterprises by banks in recent years and an unstable local and international environment have greatly exacerbated the liquidity problems of SMEs.
If your business faces a cash flow crisis, here are six practical tips that can help increase liquidity in the short and long term:

  1. Collect debts from your customers more aggressively
  2. Almost all businesses have debts from customers who remain unpaid for a long time. To be able to collect your debts, the simplest way is to talk with your customers with determination and systematically claim your payment. A tip to speed up the payment is to enable online payment in your account instead of asking your customers to bring you cash. You can then enter your account details on the invoices you issue so that they are easily available.

  3. Determine the payment of your suppliers
  4. Deferring your suppliers’ payment is one of the widespread ways to keep cash in your business cashier. Chat with your vendors and find ways to delay payment without disturbing your relationships. It is likely that the vendor will ask you to pay a premium in exchange for a later redemption time, so it is good to be prepared for that possibility. Do not forget that the more suppliers you have, the greater your bargaining power, but if the success of your business depends on a few and good suppliers, you have to be careful to manage them.

  5. Manage your inventory carefully
  6. Many times the secret to managing reduced liquidity lies in inventory management. If you have too much stock, your cash is tied to it. If you still have a shortage of stocks, then you lose sales (and hence cash), and on the other hand, you are most likely to be forced to buy at a higher price when you need it.
    Therefore, proper programming of your inventory replenishment is very important. Take time in this planning, and if necessary invest in inventory management software. Also, do not forget to take into account other exogenous factors that may affect the demand for your products, such as oil price changes, weather conditions, etc. depending on the nature of your business activity.

  7. Consider the possibility of resorting to factoring
  8. Factoring, or factoring agents, allows you to work with a Bank that will discount your customer invoices to a lower value, averaging 80% -90% of the total value on the invoice.
    The big advantage of this process is that it usually runs in a short time since the creation of the requirements, so it can give you a valuable injection of liquidity when you need it. Additionally, the Agent will proceed with the accounting and management of your clients’ accounts, leading in the long run to consolidate your customer base.

  9. Ask for a loan from your close circle
  10. When you cannot get a loan from any bank, resorting to your close circle for valuable liquidity can prove to be life-saving. However, you must be very careful when you follow this path. The right way is by signing a private agreement and offering an interest rate to those who will borrow the capital so that the move is perceived by the lender as an investment rather than a concession.
    In sum, managing your business’s liquidity is key to both short-term survival and long-term prosperity. Proper programming and accurate forecasting of inflows and outflows of capital must be a priority for each entrepreneur and assigned to the hands of qualified staff and consultants.


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