Finance is the most important thing a business needs because a business cannot run without it. There are two types of transactions in a business and all the transactions require money. Capital expenditure and revenue expenditure are two types of expenses that occur in a business. Capital expenditure includes all the expenses that are spent on purchasing long-term assets of a business. Revenue expenditure includes expenses or money spent on the day-to-day running of the business this includes paying for electricity, rent etc. Both types of transactions need finance and businesses that are short of finance can never meet their short-term liabilities or the revenue expenditures. The business, in this case, needs to check the intakes and outtakes and consider ways to improve the financial position of the position.
There are multiple ways to improve the cash flow of a business such as getting a loan or taking debentures but all these sources can be time-consuming and might require a collateral. Listed below are a few ways to meet short-term liabilities.
1) Adopt a tight credit policy
The first way to meet short-term liabilities is to adopt a tight credit policy. This basically means that you have to allow a short credit time to your debtors. People who purchase goods from you on credit might take months to pay the amount and this will lead to low finance in your business. To avoid this problem, you can adopt a tight credit policy and allow only a few days of credit to your customers, start charging interest if the payment is not made within the allowed time. This will motivate them to pay early because nobody wants to pay extra.
2) Delay payments
The second way is to delay payments to the creditors. We purchase goods from people, and they are our creditors. To meet your short-term liabilities, you can delay payments to your creditors and ask them for a longer credit time. Let them know about your situation and ask them for a longer time, there is high competition in the market so your creditors will probably allow you to pay later.