Liquidity describes how easily a business can access cash to meet its short-term obligations. Cash in the bank is the most liquid asset; assets like equipment or stock are less liquid because they take time to sell.
Liquidity versus profitability
A profitable business can still run into trouble if its money is tied up and it cannot pay bills on time. That is why liquidity is sometimes described as more urgent than profit in the short term.
Managing it
Keeping a cash buffer, invoicing promptly and matching the timing of income and outgoings all help a business stay liquid.
- Liquidity is about access to cash, not total wealth.
- Profit and liquidity are not the same thing.
- Timing of money in and out is central.
A flexible facility such as Credicorp Flex can help smooth short-term gaps, but it should support a sound liquidity plan rather than replace one.
See also: What is liquidation?, Funding for law firms and legal practices and What if my company can only pay part of this month's amount?.