Drawing on the book Business Studies, to collect immediate cash, one quick way is chasing debtors. Ask the debtors to pay off the debts as soon as possible, if necessary, the company can use some compulsive instruments to force the debtors give the money back. On one hand of adopting this method, lots of cash can be returned sooner to meet current requirements. On the other hand, to be chased will make customers upset and lose confidence about the company. The reputation of the company in customers’ mind will decrease significantly, thus, customers may not buy the products any more in the future. Therefore, the company will make much less profits in the future and this will influence the long term run.
Opposite to chase debtors, the company can negotiate more credit or delay payments of bills. Some money can kept and available for using, and the company can return money to creditors in a longer time. To some extent, the situation of liquidity crisis will be mitigated. However, it will cause serious effects. Firstly, negotiate more credit may undermine the company’s reputation. The creditors will be doubtful of that whether the company is able to pay off the bills or not, they lose confidence. Once they consider that the company is unable to pay, they will not loan money to the company any more. Secondly, if the company mortgages something to the creditors, they may refuse to give them back. Thus, this will strongly influence the future activity of this company.
If the company is still face the liquidity crisis after adopting some methods, there is one serious way is to sell its shares to the publicly. While money coming into the company, it is also losing its control through the whole company. If the majority of shares are bought buy another company, this company will be easily taken over. This is a very serious problem.
Besides the instruments those are analysed hereinbefore, there are still some reasonable methods to solve this liquidity problem, such as replace overdrafts with long term loans, negotiate additional finance and so on. These methods are all efficacious to some extent but have their own disadvantages. Therefore, to conclude, the companies should adopt different ways to solve the liquidity problem depend on their own financial situation, so they can live through this crisis more easily.
1. Business Studies. Ian Marcouse, Andrew Gillespie, Barry Martin, Malcolm Surridge, Nancy wall. Hodder and Stoughton. 1999.
2. Company Accounts. Maurice Pendlebury and Roger Groves. Routledge. 1994. Third Edition.