10 tips for liquidity control
Sist oppdatert 31.12.2022
Have you experienced that your money goes quicker than it comes? Here are ten tips to achieve better control over your liquidity, which means how you control the money streams.
Liquidity, a person or company’s ability to pay, is the ability to meet one’s short-term duties by their deadline
likviditet in Store norske leksikon on snl.no. Collected 29. december 2020 from https://snl.no/likviditet
A few years ago, a demand for appropriate liquidity was introduced in the law of shares.
Appropriate liquidity
Paragraph 3-4 is now called “Demand for appropriate equity and liquidity”.
Previously, only the equity had to be appropriate, but now, a limited company also has to at any time have a “liquidity that is appropriate based on the risk and extent of the business in the company.”
In an SP it’s about your personal finance
If you are running a sole proprietorship, your liquidity is about how much money to pay the bills your personal finance is able to get.
Therefore, an SP is a vulnerable form of organisation at high risk and investments, because you risk your private property and belongings if you don’t have enough money to pay what you owe.
Liquidity control is crucial
Having good liquidity control is crucial if your business is going to succeed, no matter if you’re running an LLC, an SP or a different type of business.
There are enough examples of growing companies that have gone down the drain because of poor control.
Here are some tips for better liquidity control:
Liquidity control – 10 tips
- Plan ahead
Consider how you can get access to money (potentially a loan), before you need it.
- Change types of costs
Explore the possibility to change regular costs into variable costs (which vary based on the level of activity/turnover).
- Send the invoice
Send the invoice as soon as you finish the job.
- Divide
You can divide bigger invoices: agree on a payment plan and send on-account invoices along the way. Once the entire project is finished, you send a concluding invoice.
- Appreciate fast payment
Consider giving a quantity discount if the client pays quickly.
- Get the money in quicker
Be strict with the payment deadlines. If you send a digital invoice, the client will recieve it quickly, so the credit period can be reduced (e.g. to seven days).
- Can you avoid debt collection?
Be careful with debt collection. Some clients may find this quite drastic, and it might not be favourable for you in the long run.
- Cherish good clients
Prioritize the most important clients, and cut out the customer relationships that don’t provide income for you.
- Mind your own payment deadlines
Pay your bills before the due date, and maintain a good relationship with your creditors. This way, you will avoid speculations about problems in your business. Remember that state actors are merciless when demanding the money you owe them.
- Contact the people you owe money to
If you see that you are unable to pay the bill: Contact the creditor early, and try to agree on a delayed payment or dividing the payment.
See more tips and a video on liquidity control in your business.
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