Liquidity
How easily a business can meet its short-term obligations with cash or assets quickly turned into cash.
What it means
Liquidity describes how readily a business can cover its short-term commitments — wages, suppliers, tax — using cash or assets that can be converted to cash quickly. A highly liquid business can pay what it owes as bills fall due; poor liquidity means cash may run short even if the business is profitable overall.
Receivables are a key liquidity asset, but only once they are actually collected.
Improving it
Speeding up collections is one of the most direct ways to lift liquidity without taking on debt. Tightening terms, prompt reminders and acting on overdue accounts all help convert receivables to cash sooner. Compare scenarios with our free tools, and see working capital for a related measure.
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