The sale of receivables as part of liquidity management.
A well-functioning liquidity management system is essential to keep your company on track. If your balance sheets are well balanced, you will remain solvent and can plan your future with certainty. An efficient method for securing your liquidity in the medium and long term is the sale of receivables.
Get your finances under control with liquidity management.
Liquidity management is about keeping an eye on pending incoming and outgoing payments, uncovering savings potential, and making sure that you have sufficient liquid funds to allow your business to constantly run smoothly.
Liquidity management means identifying liquidity shortfalls at an early stage.
To ensure a healthy ratio between cash flows, assets and the necessary financing, it is worthwhile taking a regular look at your balance sheets. Particular attention should be paid to the following liquidity ratios with a view to securing liquidity in the medium to long term:
Contribution margin 1
Contribution margin 1 compares the ratio of equity to assets. An equity-to-assets ratio of 50 percent is considered healthy.
Contribution margin 2
Contribution margin 2 compares the equity plus long-term borrowed capital to assets. The former should, if possible, fully cover or exceed the assets.
First degree liquidity
Also known as cash liquidity or cash ratio, first degree liquidity is the ratio of liquid funds to short-term liabilities. A coverage of around 20 percent is an approximate reference value.
Second degree liquidity
Second degree liquidity, also known as collection liquidity or quick ratio, considers the liquid funds together with the short-term receivables and securities portfolio and compares them with the short-term liabilities. Ideally all short-term liabilities are covered 100 percent.
Third degree liquidity
Third degree liquidity, also called the working capital ratio or current ratio, measures the working capital against the short-term liabilities. To prevent a liquidity shortfall, the working capital needs to be around twice as high as the company’s short-term liabilities.
Receivables management as important tool.
If your company’s figures deviate significantly from the above-mentioned reference values, this is a clear alarm signal that you need to make changes to your liquidity management. There are plenty of measures you can take. If you look at various guidelines on this topic, engaging a professional receivables management provider will often be the first piece of advice.
So that you do not have to wait too long on your customers’ payments or even sit on outstanding invoices, stringent processes from invoicing to dunning procedures are absolutely imperative. In this context, EOS subsidiary FinTecrity offers software solutions especially for SMEs, which will largely digitize and automate your invoicing and receivables management.
Low levels of outstanding receivables thanks to sale of receivables.
If reminders are no longer helping, there are two options: Either your company decides to work with a strong partner in fiduciary collection that recovers the receivables on the company’s behalf. Or you assign the outstanding receivables in full by selling them with all rights and obligations to a reputable buyer at a fair price. This allows you not just to overcome a short-term cash flow problem but also to turn debts into cash both immediately and in the medium term, which provides your company with greater planning certainty.
Would you like to free up liquidity and sell overdue receivables?
EOS is a byword for longstanding experience and fair purchase prices. Simply make an appointment with us for a consultation and our experts will handle everything else.
Forward flow sales for long-term and plannable liquidity.
Does your company regularly suffer from payment defaults? Forward flow deals help you to keep your receivables at a consistently low level and ensure your long-term liquidity.
Inadequate receivables management often the cause of liquidity shortfalls.
As well as insufficient financial controlling, the cause of liquidity shortfalls is all too often found in a company’s receivables management and/or the payment practices of its own customers. Too many outstanding receivables can quickly become a problem.
But what are the reasons for the payment defaults? And what can companies do to counter them? EOS conducted a survey on this issue among 3,400 companies in 17 European countries.
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