By saying liquidity we mean the possibility of performing the financial liabilities of the company, showing the coverage of liabilities of the company with assets whose period of conversion into funds corresponds to the period of repayment of liabilities. The main feature of liquidity is the formal exceed of market assets towards short-term liabilities.
The liquidity of a company means its full solvency and implies a permanent equality between assets and mandatory payments with two characteristics at the same time.
- According to total amount,
- As per the period of turning into funds (assets) and repayment period (liabilities).
The duly organized work in the company allows to effectively use financial resources and avoid problems connected with making payments.
To improve the solvency and liquidity of the company it is necessary to improve the following directions of financial and economic activity:
- Drawing up the payment calendar, it is necessary to follow the discipline of implementing payments, the business reputation of the organization's debtors, to carry out daily monitoring of receivables,
- Develop an optimal settlement policy,
- Careful follow-up of receivables after return, set a maximum limit of receivables, if exceeded, the delivery of goods or services to the debtor should be stopped,
- Development implementation of a discount system in order to accelerate the repayment of receivables,
- Postponement of the deadline of paying credit liabilities,
- Alignment of credit and debit obligations in accordance with amounts and period
- Partial implementation of payments for accountspayable to suppliers, which can be implemented in the following form: prepayment - payment on delivery or loading - making payment some time after receiving the goods. This approach enables to gradually withdraw funds from business.
General liquidity may be improved a number of managerial decisions, of which the most effective are:
- Reduction of production costs,
- Sale of unused resources (assets),
- Attraction of long-term financial sources instead a short-term one.
The application of a judicial process is possible to use in case of occurrence of problems related to to the return of receivables and the possibility of changing the repayment period or in the absence of a settlement agreement, it is possible to use the judicial process for their return.