Staying solvent. Five tips for liquidity.
Liquidity is the lifeblood of a company. SMEs need available funds to do business. Therefore good liquidity planning is vital. Discover the practical benefits of multibanking, and what steps you can take to ensure that you are always solvent.
1. Putting liquidity planning in place
A company's income and expenditure are not linear. The costs of materials and salaries can go up and down at different times. Incoming payments can also vary, when long-term contracts are only paid on completion of the work, for example.
Along with budget planning, liquidity planning is therefore essential for an SME. The business must be able to see when cash and other liquid assets will be needed, and when payments will be coming in. According to Swiss federal government estimates, nine out of ten bankruptcies are due to a liquidity crisis. With good liquidity planning, you can safeguard against payment reminders and debt enforcement.
2. Maintain an overview with multibanking
SMEs often have multiple accounts with different banks. This can make it difficult to keep an overview of their liquidity. It can be expensive, too. Multibanking does the hard work for you: no more laboriously transferring account balances into an Excel document or your company's software.
A single login gives you access to all your linked bank accounts and account information. So you can see your liquidity position at a glance – on mobile devices, too.
Sign up directly for the Multibanking function online in Credit Suisse Direct now.
3. Procuring short-term liquidity
If a company's liquidity diminishes, there are various measures it can take to access money more quickly. It helps to issue invoices promptly, with shorter payment deadlines. In the case of larger contracts, you might want to ask for a deposit up front and then payments on account.
One good way to tide a business over in the event of liquidity shortages is factoring. This is where accounts receivable – for deliveries or services, for instance – are transferred to the bank. Your business gets the liquidity it needs straight away, even if the client doesn't pay until later. In this way, factoring helps to simplify liquidity planning.
4. Postponing expenditure or leasing equipment
At the same time, SMEs can also try to postpone expenditure. You could negotiate longer payment terms, put acquisitions on hold, and scale back your inventory. It's important that you don't delay urgent investments or maintenance work, however, as this could prove costly for the business in the long run.
If you simply don't have the liquidity for essential investments, leasing can ease the strain on the balance sheet. Instead of purchasing outright, SMEs can lease capital goods or vehicles from the bank. This means that, rather than having to pay the full amount in one go, the costs can be spread in easily calculated installments.
5. Increasing liquidity with a loan
Even with the best liquidity planning, things can sometimes be tight. The market doesn't always do what you expect. You might need additional funds for expansion or a takeover. In this case, you will need to obtain new liquidity from outside the business.
A loan is often the easiest way for an SME to increase its liquidity. The application process is quick and easy. Banks also offer bespoke corporate finance solutions. Alternatively, depending on the circumstances, a different form of financing may be best for your particular company.
As the leading Bank for Entrepreneurs, we have worked with the federal government and other banks to develop a guarantee program to provide rapid and straightforward support for Swiss companies affected by the coronavirus pandemic. In addition to the standard corporate finance solutions, until July 31, 2020, SMEs also have the option to apply for guaranteed bridging credit facilities of up to 10 percent of their turnover, or a maximum of CHF 20 million. Further information on COVID-19 credit facilities and the package of measures for SMEs can be found on the overview page.