How to improve liquidity in a company
Managing a company's liquidity is one of the key challenges of the CFO. A properly conducted review of a company's balance sheet allows to identify areas containing the potential to release cash and improve liquidity. It is not uncommon for these to be very simple actions, the implementation of which quickly and without cost brings about a significant improvement in the situation - Michał Parafiniuk, CFA®, Managing Partner at Thedy & Partners Finance, writes in Rzeczpospolita.
The following is a summary of the most important points to consider in your analysis.
Receivables
The first and most obvious item to look for optimisation is accounts receivable. Many companies do not regularly review their customers’ unpaid invoices at all, leading to significant amounts being frozen in this balance sheet item.
Often, the accounting records that form the basis for such a review are inappropriate – e.g. incorrectly shown payment dates, incorrect invoice dates, delays in posting sales invoices. Such errors result in the inability to take effective collection action.
Another challenge can be the efficient distribution of issued invoices. Sending the customer an invoice electronically often speeds up the moment of payment.
Another way to speed up payment is through a factoring service. The issued invoice is forwarded to a factor who, for a relatively small fee, will pay the invoice immediately and wait for the customer to make payment. When the factor assumes the full payment risk, we speak of non-recourse factoring. In this case, non-payment by the client does not result in the repayment of amounts previously received from the factor.
What else is discussed in the article?
- Deposits
- Liabilities
- Sale of non-operational assets
- Refinancing of assets
- Sources of funding
- VAT
- Estonian CIT
- Tax debt relief
The entire article can be read in Rzeczpospolita of 26 October 2022, page H5