What is liquidity?

Liquidity is a financial indicator that shows whether a company is able to meet its short-term obligations. It concerns whether there are sufficient liquid assets (such as cash or money in the bank) to pay bills, pay salaries, and cover other daily expenses.

There are 3 common ways to measure the liquidity of a company: the current ratio, quick ratio, and net working capital. In the image below, you can see how you can calculate liquidity and what is considered a healthy liquidity figure.

 

 

Why is liquidity important for businesses?

Liquidity is crucial for the (financial) health and continuity of a company. It ensures that you:

• Can pay salaries and suppliers on time.
• Can handle unexpected expenses more easily.
• Maintain your business reputation by paying on time.

A lack of liquidity can lead to serious problems, such as:

• Dissatisfied suppliers and employees.
• Interest or extra costs due to missed payments.
• Bankruptcy.

How can you improve your company's liquidity?

There are several ways to improve liquidity:

• Optimize your invoicing process:
  • Ensure invoices are sent on time and are correct.
  • Use automated systems to send reminders.
• Improve your accounts receivable management:
  • Actively monitor outstanding payments.
  • Take action in a timely manner if necessary.
  • Set clear payment terms and enforce them strictly.
• Control your costs:
  • Identify unnecessary expenses and cut them where possible.
  • Negotiate with suppliers for more favorable terms.
• Get help with debt collection:
  • Work together with incasso.nl to collect arrears faster.

The relationship between liquidity and debt collection

Proper accounts receivable management has a direct impact on your company's liquidity. The faster outstanding invoices are paid, the better your cash flow. This makes it possible to finance daily expenses and investments without issues, thereby preventing liquidity problems.

How can incasso.nl help you?

• Faster payments: Through our decisive and smart collection trajectories, invoices are paid faster. This means you have access to your money sooner and the chance of liquidity problems is greatly reduced.
• Efficient processes: At incasso.nl, we take time-consuming work off your hands, allowing you to focus entirely on your business.
• Prevention of liquidity problems: By working with incasso.nl regularly, your cash flow remains healthy and predictable. You can always contact one of our collection specialists to spar about your accounts receivable management.

With incasso.nl, payment arrears are resolved in over 90% of cases. This way, you have your money sooner and strengthen your liquidity.

Frequently asked questions about liquidity

What is the difference between liquidity and solvency?

Liquidity looks at the ability to meet short-term obligations, while solvency measures the long-term health of a company.

How do I recognize liquidity problems in my company?

Warning signs include (recurring) difficulty paying bills on time, rising debt, and decreasing working capital.

How quickly can a collection agency help with liquidity problems?

At incasso.nl, you can submit an invoice easily and quickly via the incasso.nl app. Subsequently, the collection trajectory is started on the same working day. This increases the chance of a successful collection. Because in general: the sooner a collection trajectory is started, the greater the chance of a successful outcome.

Conclusion

Liquidity is an indispensable factor for the success and continuity of your company. Through tight accounts receivable management, cost control, and strategic use of your collection partner, you can improve your liquidity and keep your company financially healthy.