Liquidity shortage – how can i prevent it??

Difficulty paying

A liquidity shortage is unpleasant because it can worsen creditworthiness and put relationships with suppliers and customers to the test. Many causes of liquidity bottlenecks can be eliminated through good liquidity planning. Liquidity can also be secured through measures such as debt restructuring, leasing and factoring. This article also explains how the sale of receivables and receivables management can improve the liquidity situation of companies of all sizes.

Definition: what actually is a liquidity shortage?

Every company has to service various running costs, including for example wages and salaries, rents, purchases of goods, etc. In addition to such ongoing costs, which need to be well mapped in liquidity planning, unexpected expenses such as back taxes or repairs also need to be paid. If the liquidity available on the business account is not sufficient to service all obligations on time, there is a liquidity shortage. This can also affect companies that otherwise face a good order situation and thriving business.

Which liquidity bottleneck consequences do companies have to fear??

The consequences of a liquidity bottleneck can be severe. If payment targets are missed with suppliers, they may, for example, cancel negotiated discounts or only deliver against payment in advance in the future. If an important supplier switches to advance payment, this puts additional strain on liquidity. Then, in order to maintain operations, two billing intervals must be paid in one go. In the worst case, this does not succeed, so that the supplier delivers late or not at all and there are production losses. In this case, services may be rendered to customers too late, which in turn leads to a delayed inflow of liquidity.

Among the most unpleasant liquidity shortage consequences is the accompanying deterioration of credit ratings. If a company is already in a tight spot, banks are often reluctant to grant short-term credit. The reason: before granting a loan, banks check whether the company is already in arrears. Delay is generally considered a negative. In order to avoid such liquidity bottleneck consequences, companies should therefore apply for an overdraft facility or installment loan before one or more creditors are in default.

Late payments can also affect ratings. In particular, if a creditor calls in a collection agency in the event of persistent default, this can become known to important rating agencies such as Creditreform. Ratings can then be downgraded, damaging creditworthiness.

What does good liquidity planning look like?

Good liquidity planning ensures that sufficient liquid funds are available at all times. How much liquidity does a company need and what assets can be considered liquidity? Typically, three liquidity levels are calculated as part of liquidity planning, for which there are guideline values.

Liquidity I. Grades: 5-20 %

First-degree liquidity is calculated as the ratio between cash and cash equivalents and current liabilities. Liquid funds are demand deposits such as credit balances on current accounts. An example: cash and cash equivalents amount to 100.000 EUR, at the same time there are current liabilities in the amount of 500.000 EUR. To calculate the first degree liquidity as a percentage, the following calculation is necessary: (100.000 EUR/500.000 EUR) × 100 = 20.

How high the first-degree liquidity should be depends on the company and industry. Typically values of 5-20. It is important to bear in mind that short-term liquidity does not generate any income in the current interest rate environment. Therefore, this part of liquidity should be limited to a manageable amount.

Liquidity II. Degrees: 100 +

To determine second-degree liquidity, cash and cash equivalents and current receivables are first added together. This sum is divided by current liabilities. To calculate second-degree liquidity as a percentage, the result is multiplied by 100. Good values for this part of liquidity are in the range of 100-120 %. A value of 100 % means that all current liabilities can be serviced from cash and cash equivalents and current receivables. At levels of just over 100%, all current liabilities can be serviced even if a small portion of receivables defaults.

Liquidity III. degree: 120 +

To calculate third-degree liquidity, cash and cash equivalents, current receivables and inventories are first added together. The total is divided by the current liabilities and the result is multiplied by 100 to represent the percentage. Good values are in the range of 120-150 %. If the value is significantly higher, this may indicate that inventories are too large (and thus that capital is being tied up unproductively).

The aim of all liquidity planning is to ensure liquidity throughout the organization. It can therefore z. B. Liquidity planning includes extending your own payment terms with suppliers and at the same time shortening the payment terms of your own customers. This gives companies more liquidity – when suppliers wait longer and customers pay earlier.

The top 5 reasons for a liquidity shortage and countermeasures

The causes of liquidity bottlenecks in companies can be very diverse. Naturally, any form of major, structural problem is accompanied by liquidity bottleneck consequences. A company that is structurally in deficit will sooner or later also face liquidity shortage consequences. At this point, however, we will focus on the causes of liquidity bottlenecks, which can occur even in structurally sound companies. Five common causes of liquidity bottlenecks, especially for SMEs, and possible answers (e.g. sale of receivables, optimized receivables management, installment credit, debt restructuring, etc.).) are discussed below.

Receiving payments too late

A frequent problem for liquidity bottlenecks is late payments from customers. Even if the order situation is good, this can result in a liquidity bottleneck. This is particularly true for companies that are simultaneously faced with late incoming payments and larger pre-financing of orders. This can be used in the liquidity planning z. B. Be considered through the agreement of credit lines.

A certain asymmetry between incoming and outgoing payments can often be observed in SMEs that purchase intermediate services from commercial suppliers and sell their own services to consumers. Suppliers’ payment terms are often short and must be adhered to in order to protect reputation, discounts, etc. not to jeopardize. At the same time, many private customers pay very late. Since many consumers pay invoices too late, regardless of the agreed payment terms, shortening the payment terms does not help here either. The following liquidity planning measures can then be helpful:

  • Issue invoices immediately after the service has been rendered. This is where effective receivables management begins.
  • Allow cash discounts and thus create an incentive for quick payments
  • Operate a professional receivables management. Document where outstanding debts exist and how long an invoice has already been in arrears. Don’t be afraid to write a payment reminder and call defaulting customers in a friendly tone if necessary.
  • Agree payments with your customers according to the milestone principle. Specify, for example, that a first progress payment is due after delivery of the building material.
  • Always try to limit receivables from a single customer to a small proportion of your total receivables (risk diversification). Progress payments are suitable for this purpose. If a large customer pays very late, this can already result in a liquidity bottleneck.

Bad debts: When customers do not pay

After a prolonged delay, the loss of receivables is at stake. If a customer does not pay his invoice at all, you are initially left with the loss. If the customer is basically solvent, you can collect the receivable via a collection agency or by means of judicial dunning proceedings. However, this is relatively lengthy. Bad debts are one of the most common causes of liquidity bottlenecks and should be avoided as far as possible by acting with foresight. How can this be managed?

  • Here, too, the following applies: the more installment payments you agree on according to the step-by-step principle, the better
  • Consider selling receivables to factoring companies
  • In liquidity planning, always anticipate that 5-10 % of receivables will be received significantly too late and ca. 5 % are irrecoverable. Also take this into account in your price calculation.
  • Have a SCHUFA report submitted for larger orders from consumers
  • Obtain creditworthiness information on commercial customers

Since a major loss of receivables can be followed by a liquidity bottleneck, you should exercise the utmost caution, especially with large-volume orders. If, for example, a private customer places a renovation order with a craft company for 50.EUR 000, should he agree to installment payments according to defined partial services. If this is not the case and the customer refuses to submit a SCHUFA report, this can be interpreted as an alarm signal.

The sale of receivables to factoring companies is generally not possible as a solution for individual receivables, but only for all of the company’s receivables. In true factoring, the factor bears the risk of non-payment. In return, you have to waive part of the receivable because the factor charges a fee.

Back tax payments

The tax office should be included in any liquidity planning. Back taxes are one of the most common causes of liquidity bottlenecks, especially in SMEs. An example: the 2016 financial year was moderately successful. In May 2017, you submit your tax return for 2016. In September you receive your tax assessment. The tax office significantly reduces the advance tax payment for 2017.

However, 2017 will be much more successful. In September 2018, you will file your tax return for 2017. You receive your tax assessment in December. The tax office sets a high additional payment for 2017 and increases the advance payment for 2018 and 2019. You must therefore make the back tax payments for 2017 and the increased advance payment for 2018 in one fell swoop. Your liquidity is considerably burdened.

Do not rely on your tax advisor to tell you at an early stage when additional tax payments are imminent. You should already know in January 2018 what taxes are likely to be due for 2017. You should compare these anticipated taxes with the advance payments actually made and immediately set aside reserves for the difference. The formation of such reserves is an essential part of liquidity planning.

Semi-finished work: A lot of work, few bills

SMEs in particular know the problem: Despite very many orders, far too few invoices are written.

Liquidity bottleneck work

The reason: companies do not want to reject new incoming orders and therefore work in parallel for different customers. However, customers do not pay until all work has been completed.

This increases the average processing time per order and leads to a later inflow of funds on average. Acquisition then takes precedence over liquidity planning. This approach is one of the most common causes of liquidity bottlenecks. The only remedy here is better planning.

Repayment rates for loans are too high

Too high repayment rates for loans are also one of the most common causes of liquidity bottlenecks. An example: You purchase a vehicle and finance it with an installment loan. After three years they sell the vehicle again. During the three years you finance with the installment loan not only the actual use of the vehicle, but also the residual value tied up in it. During the term of the loan, considerably more liquidity flows out than is actually necessary.

The liquidity bottleneck consequences of such constellations can be avoided by leasing. With leasing, the agreed residual value is not repaid during the term, unlike with an installment credit, but only interest is paid on it. The residual value tied up in the vehicle is thus available as liquidity. Leasing is possible for vehicles, also for machines, real estate and many other goods.

Of course, in addition to the five causes of liquidity bottlenecks mentioned above, there are many other reasons why companies run out of cash. These include seasonality, a surplus of staff, loss-making sites or business units, too low margins or too high private withdrawals. However, the five liquidity shortage causes above are very common – and can be solved relatively easily with appropriate measures.

Alternatively, rescheduling existing installment loans can reduce cash outflows and thus also contribute to successful liquidity planning.

Solutions from Fincompare against operational liquidity bottleneck

FinCompare offers companies of all sizes a variety of services that can be used to quickly and sustainably eliminate the causes of liquidity bottlenecks. This includes in particular factoring, leasing and installment loans. This is a reliable way to avoid the consequences of liquidity bottlenecks.


With factoring, you can outsource your entire receivables management. Factoring companies automatically buy up all your receivables, issue invoices to customers, send reminders and collect payments. If a payment default occurs after the sale of receivables, this is no longer their problem. They receive liquidity a few days after invoicing and no longer have to worry about the receivable. With accounts receivable management, you can also outsource the entire bookkeeping if required. You can rely on the factorer for your liquidity planning: Companies pay quickly and reliably.

What does FinCompare offer in the area of factoring?

FinCompare cooperates with a large number of factoring companies, which offer a choice of z. B. enable the sale of receivables or take over the entire bookkeeping. When looking for a partner for the sale of receivables, it is important to find specialists for the respective industry and company size. Only then it is guaranteed that the usages of your business are considered in the best possible way. FinCompare supports you in a personal conversation with the individual search for the best provider.

Our offer in the area of factoring/receivable sale:

  • For companies with annual sales of 500.000 to 50 million. EUR
  • Payment terms from 10-180 days
  • Contract periods from 12-60 months
  • In two weeks to the offer
  • By combining the sale of receivables and rapid payment, two major liquidity bottleneck causes are eliminated

Following the personal consultation, we will submit a non-binding offer to you.

Installment loan

With an installment loan, you can make any business purchases – z. B. in machinery, vehicles or the purchase of goods. Very often, however, an installment loan is also suitable for debt rescheduling. In doing so, you replace current loans with a new installment loan. The current loan can be an installment loan, an overdraft or any other bank loan.

A debt restructuring can offer advantages to your company. Firstly, a rescheduling of loans can often eliminate one of the very important causes of liquidity bottlenecks. This is the case if you repay a residual value with the installment loan, which you have not used at all after the end of the use and can sell it. In this case, the installment loan can be adjusted to the residual value. At the end of the use (e. B. of a vehicle) then values a residual debt at the amount of the residual value. You can repay the installment loan after the sale of the residual value with an unscheduled repayment if desired.

Debt rescheduling often offers additional cost advantages. If an existing installment loan has been running for some time, the interest rate level has fallen in the meantime. If your creditworthiness remains the same, your company will receive the new installment loan at better conditions. If your company’s credit rating has improved in the meantime, additional benefits can be realized.

An installment loan can also eliminate immediate liquidity bottleneck consequences: Become liquid quickly and settle all pending receivables. However, do not wait too long: if you are already in arrears, this can have a negative impact on your company’s credit rating.

What does FinCompare offer for installment credit and Co.?

We select the best possible solution for your company from more than 250 financiers. After the individual consultation in the first meeting, we transmit your application data anonymously to our pool and then submit five installment loan offers to you. We develop the application together with you. For this purpose, we require the annual financial statements of the last two fiscal years, a current BWA including SuSa and bank statements of the last six months.

Our offer in the area of installment credit:

Thanks to our extensive network of more than 250 financiers, we can propose offers tailored to your needs:

  • Loan amounts from 25.000 up to 20 Mio. EUR
  • 12-120 months term
  • For companies with Crefo-Score 1-5
  • Timely debt rescheduling can avoid short-term liquidity bottleneck consequences and save interest in the long term


Leasing offers companies various advantages – also and especially with regard to liquidity bottlenecks to be avoided Consequences. Leasing preserves liquidity, because only actually used parts of the purchase value are paid out via the leasing rate. Leasing also offers tax advantages and leads to an improvement in the equity ratio, which in turn can have a positive impact on the creditworthiness of your business. And last but not least, leasing facilitates liquidity planning because cash outflows are constant and easily predictable.

What does FinCompare offer in the area of leasing?

After the individual consultation in the first meeting, you will receive five non-binding offers within a few days. We offer leasing for

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