Factors That Influence a Companys Liquidity Position

In general, a company's liquidity position improves if it can get cash to flow in more quickly and flow out more slowly. Factors that weaken a company's liquidity position are called drags and pulls on liquidity.

Drags on liquidity delay or reduce cash inflows, or increase borrowing costs. Examples include uncollected receivables and bad debts, obsolete inventory (takes longer to sell and can require sharp price discounts), and tight short-term credit due to economic conditions.

Pulls on liquidity accelerate cash outflows. Examples include paying vendors sooner than is optimal and changes in credit terms that require repayment of outstanding balances.

Was this article helpful?

+1 -1

Responses

  • TERHI
    What factors to influence company's liquidity position?
    7 years ago
  • pietro buccho
    What is major factor that influence companies liquidity position?
    7 years ago

Post a comment