10 tips for liquidity control

Tom lommebok som illustrasjon til artikkel om styring av likviditeten.

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

  1. Plan ahead

    Consider how you can get access to money (potentially a loan), before you need it.

  2. Change types of costs

    Explore the possibility to change regular costs into variable costs (which vary based on the level of activity/turnover).

  3. Send the invoice

    Send the invoice as soon as you finish the job.

  4. 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.

  5. Appreciate fast payment

    Consider giving a quantity discount if the client pays quickly.

  6. 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).

  7. 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.

  8. Cherish good clients

    Prioritize the most important clients, and cut out the customer relationships that don’t provide income for you.

  9. 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.

  10. 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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