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A brief guide to the most important points:

Forward-looking liquidity planning helps SMEs to avoid financial difficulties even when business is running smoothly.

  • Liquidity is a key performance indicator in corporate management.
  • Online banking and software tools can be used to constantly update liquidity management.
  • Examples of the main levers for liquidity management include accounts receivable and accounts payable management and the identification of surplus liquidity.

The basic principles of liquidity planning

How can you forecast future cash flows and plan liquidity? Coordinating cash inflows and outflows is an important task that allows companies to make sure that they always have sufficient financial flexibility. This requires careful, constantly updated liquidity planning.

Active liquidity management ensures that potential shortages are identified early on. Nine out of ten companies fail at this task; they end up going bankrupt due to insufficient cash flow. Comprehensive liquidity management, including liquidity control, not only reduces this risk, but also helps ensure that the company makes the best possible use of its financial resources.

Liquidity planning is based on the company’s goals and vision, which serve as a compass. This helps business owners to make the right decisions based on their specific circumstances, identify short-term liquidity gaps or plan investments. Follow these five tips to stay in control.

1. Keep your liquidity planning accurate and up to date

Accurate, up-to-date liquidity planning is essential in day-to-day business operations. It is one of the main tools for ensuring solvency.

Managing liquidity means taking into account cash inflows and outflows from day-to-day operations, as well as the funds required for investments or capital repayments. Depending on the size and complexity of the business, simple Excel spreadsheets or specialized software solutions can be used to ensure that liquidity planning remains accurate and organized. The UBS liquidity plan template is an example of a suitable Excel tool. Whether you choose this template or opt for other tools and liquidity management techniques for your forecast, you should also consult external experts to obtain a second opinion if possible.

2. Use online banking to get an overview and look ahead

Online banking is an important tool for planning and particularly for monitoring liquidity. It provides SMEs with an up-to-date overview of past account activity and shows the current status of all accounts. In addition, many online banking solutions feature a balance preview that displays upcoming transactions. They also indicate credit limits, specifying the amount still available. This gives you updated data on an ongoing basis that you can incorporate into your liquidity overview.

UBS has integrated bexio – the first external business software – into its E-Banking platform, which is very easy for self-employed individuals, small businesses and start-ups to use. Thanks to automatic data synchronization, the program also displays up-to-date accounting data in the “Liquidity Cockpit”. At UBS, we go one step further: if you have accounts at multiple banks, the Multibanking solution allows you to keep track of your accounts at third-party banks in the same place as your UBS accounts.

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3. Optimize your accounts receivable management

Part of liquidity management involves optimizing payment collection and accounts receivable. Accounts receivable are customers who owe money to your company. There are three strategies companies can use to reduce their liquidity risk:

  • Rapid invoicing. Issue invoices for services rendered as soon as possible. Outstanding receivables should be closely monitored.
  • E-bills and direct debits. These digital solutions reduce the administrative and operational workload for companies with a broad customer base in Switzerland and a large volume of invoices to send. They improve liquidity planning by ensuring prompt receipt of payments.
  • Credit checks and arrangements for down payments or advance payments. These options are relevant for SMEs that have a small number of large customers and are therefore heavily dependent on their payment habits. A credit check provides greater assurance of payment from these customers.

4. Take control of your accounts payable management

Compared to accounts receivable management, accounts payable management is easier to handle as part of liquidity planning. This is because every company has more control over when it makes payments than over when it receives them. You have three options for managing liquidity through your supplier relationships:

  • Pay bills at the right time: Don’t pay your bills too early or too late. On the one hand, you should avoid potential interest charges or unnecessarily high credit fees; but on the other hand, you need to maintain credibility with suppliers, lenders, and credit rating agencies. This also helps to protect your reputation and strengthen your relationship with strategic suppliers.
  • Agree on terms: It’s a good idea to time larger payments to coincide with expected incoming payments whenever possible, or to negotiate payment deadlines or deferrals with suppliers.
  • Take advantage of leasing options: If financial resources are needed for upcoming investments, a leasing solution could be considered as a cash-preserving alternative to traditional loan financing. For example, under the “sale and leaseback” model, SMEs sell equipment to a leasing company and then lease it back at a fixed interest rate. The slow outflow of lease payments provides the company with greater short-term liquidity.

5. Identify surplus liquidity

Insufficient liquidity is a risk for any SME. However, many business owners also view surplus liquidity as a problem, for example when interest rates are unfavorable and liquid funds are eroded by negative interest rates. Nevertheless, surplus liquidity also represents an opportunity to make replacement or infrastructure investments for the company, to pay dividends, or – if the entrepreneur’s personal assets are tied up in the business – to make plans for their appropriate management.

How much cash should be kept in the company to ensure operational flexibility and financial security, and how much should be used up? The answer is largely based on liquidity planning: the company should retain exactly what it needs from an operational and strategic point of view. While operational liquidity covers regular expenses, strategic liquidity is intended for medium-term strategic purposes, such as financing market expansion or replacement investments. Anything beyond that is regarded as surplus liquidity, i.e. funds that are not needed for day-to-day operations or earmarked for strategic purposes. This money should be distributed or invested, partly to reduce the company’s liability and tax burden. Liquidity reserves can also be built up, depending on the company’s need for financial safety buffers.

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Frequently asked questions

Many SMEs safeguard their liquidity based on key financial indicators. They distinguish between different types of liquidity.

Conclusion: SMEs should focus on effective liquidity planning

It’s worth planning your SME’s liquidity properly:

  • Proactive liquidity planning reduces the risk of insolvency.
  • You can easily keep track of your finances with the help of online banking and tools like bexio.
  • Obtain assistance from experts for your cash flow management.

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