Entrepreneurship, Start-up

CHECK TO THE PROBLEMS OF COMPANY LIQUIDITY

12/03/2022

There are more and more cases of companies that, in order to pay the debts due, find themselves having the bank anticipate all the turnover produced in the month.

There are more and more cases of companies that, in order to pay the debts due, find themselves having the bank anticipate all the turnover produced in the month.
From a creditworthiness point of view, if the company has always had good behavior with the banking system, it will benefit from a good rating.
In practice, the imbalance between the payment time of payables to suppliers and the collection of credits can generate in companies the mechanism of the Dog biting its tail in the sense that the company does not have time to issue the invoices which, in order to pay the debts of the current month, must go into debt with the bank for the advance on invoices or to advance the Ri.ba.
This means that most credits quickly end up in bank debt in the form of an advance.
This is one of the reasons that gave rise to the liquidity crisis of the small and the excessive power of the banks vis-à-vis SMEs. When you slip into this condition you are more than due in the hands of the banks.
In practice, if the company finds itself in this situation, once the liquidity has been used it cannot afford to decrease the turnover as it would remain without credits to anticipate in the Bank.
If by chance a drop in turnover arrives, perhaps all aggravated by the receipt of outstanding payments, as happens for many companies, then the problems begin in re-entering bank credit lines.
At this point, a careful analysis of the cash budget together with the treasury budget is necessary to plan and manage financial movements adequately. With this type of control, the company will be able to obtain a good performance score (assessment of banking behavior), which will help it to obtain good credit lines
Relying on serious professionals in the sector is the key to success. Beware of everything to do low cost.
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