One of the main functions of the Financial Manager is to maintain a sufficient liquidity margin, which allows the company to comply in a timely manner with the payment of its obligations and the planned investment plan.
To achieve this purpose, the Financial Manager must efficiently manage the Assets and Liabilities of the company, always considering the relationship: liquidity - risk - profitability, which will depend on the risk appetite of the shareholders.
Among the items on the Balance Sheet that must be controlled are: commercial accounts receivable, inventories, other accounts receivable, fixed assets, supplier credit, debt with banks, among others; of which you must get the largest amount of cash and the longest possible cash outflow delay.
In the case of trade accounts receivable, you should seek the greatest reduction in the percentage of sales on credit (eg, going from a level of sales on credit of 50% to one of 30%), without affecting the total sales volume; you will need to decrease the credit days (eg: from 45 days to 30 days); and you must implement aggressive prompt payment discount policies (eg, going from 1/15, 30 to 2/7, 40), taking special care that discounts do not exceed the net profit margins of the business.
Likewise, it must implement strict credit policies, with preventive monitoring (“reminder” calls of the payment date, prior to the expiration of the credit).
"An efficient management of the liquidity of the company does not go through resorting to Banks before the lower requirement of cash, but in generating the cash through an adequate administration of the Assets and Liabilities of the company."
Regarding inventories, it must maintain the minimum necessary stock level, considering the storage costs that they consume and the financial expenses, if they have been financed through bank loans.
Regarding supplier credit, you must negotiate as many credit purchases as possible (eg, going from a 30% credit purchase level to a 50% credit level), with the longest credit days possible (eg. e.g.: from 30 days to 45 days).
In relation to other accounts receivable, it must, as the case may be, limit the credit to third parties and collect the current items.
With regard to Fixed Assets, obsolete assets and those that generate a lower return than desired must be liquidated.
Debt with banks must also be reviewed, seeking to negotiate the payment of the least amount of interest possible, for which, if necessary, the debt could even be sold to other Credit Institutions.
In summary, an efficient management of the liquidity of the company does not go through resorting to Banks before the lower requirement of cash, but in generating the cash through an adequate administration of the Assets and Liabilities of the company. This and no other, is the true work of the Financial Manager of a company.
