Liquidity

Liquidity indicates how well a company is able to pay its bills when they are due. It is about cash, cash flows, and how quickly assets can be converted into cash.

Even a company with high turnover can end up in trouble if its liquidity is not strong enough. That is why liquidity is one of the most crucial key figures for financial health – and one of the first areas to come under pressure when a company encounters headwinds.

What affects a company's liquidity?

Liquidity is affected by both operational conditions and external factors. Some of the most important are:

1. Payment deadlines

Long payment terms for customers (or customers who pay late) can create liquidity shortages – even when business is going well.

2. Supplier requirements

If suppliers demand prompt payment, this will put pressure on cash reserves.

3. Stock commitment

Large inventories tie up capital that could otherwise be used for operations and payments.

4. Loans and repayments

High repayment obligations are putting pressure on liquidity.

5. Unforeseen costs

Repairs, fluctuations in raw material prices, or losses on accounts receivable can hit hard.

6. Customers with poor payment ability

Both delayed payments and outright losses directly affect liquidity, which is why credit management plays a crucial role.

At Collectia, we often see that liquidity problems are one of the most common causes of late payments and defaults. An otherwise healthy balance sheet can quickly turn sour if cash flow comes to a standstill.

Liquidity ratio – the classic liquidity key figure

One of the most commonly used measures of liquidity is the liquidity ratio.

Formula: Liquidity ratio = (Current assets × 100) / Current liabilities

Over 100 % → virksomheden har flere omsætningsaktiver end kortfristet gæld
Below 100% → the company may have difficulty paying its bills on time

Current assets can be:

cash on hand
bank deposits
receivables
inventories

The liquidity ratio is particularly useful when trying to understand whether the company has sufficient funds for its day-to-day operations.

How a company improves its liquidity

There are several ways to strengthen liquidity – and they often work best in combination:

1. Shorter payment terms for customers

The faster customers pay, the stronger your liquidity.

2. Longer deadlines for suppliers

Negotiating payment terms can free up capital.

3. Active credit management

Credit checks prior to collaboration and ongoing assessment of customer risk reduce losses and late payments.

4. Data cleansing of customer master data

Errors in master data often lead to errors in invoicing – and thus delays. Correct data means faster payments.

5. Reduce inventory commitment

Leaner inventories and faster turnover rates free up liquidity.

6. Tight control of costs

Even small reductions in fixed costs can strengthen monthly liquidity.

Liquidity is largely about flow – not just the results in the annual report.

Liquidity and risk analysis

When Collectia assesses companies' ability to pay, liquidity plays a key role. Low or declining liquidity can be an early sign of:

future payment problems
higher risk of debt collection proceedings
lack of financial buffer
possible insolvency due to major unforeseen expenses

Therefore, companies should closely monitor their cash flow development and respond quickly to changes in customer payments.

Liquidity in Qatchr

Qatchr provides companies with better opportunities to manage their liquidity by offering:

credit checkthat identifies risky customers before credit is granted
credit monitoring, which notifies you of changes in your customers' finances
opdaterede kreditdata, der reducerer tab og forsinkelser

Når man ved, hvilke kunder der betaler sent eller har høj risiko, kan man sætte strammere betalingsvilkår, kræve forudbetaling eller helt undgå eksponering. Det beskytter likviditeten og sikrer et sundere cashflow.