It can be argued that reduce purchase is another efficient way to make cash. The company can buy inferior materials instead of the materials those in a high quality they used before. Then, they can buy some second-hand machine to produce products. From doing these, some money can be saved. However, obviously, the quality of the products will decrease. Consequently, after a period time, the reputation and expectation of the products will fall in customers’ mind. The products may be considered as low standard products but at the normal price, customers will choose other better goods instead. So this method is not suitable for a long run in business, or it can be said that it is not worth keeping running this business.
Similarly, the company can also reduce expenditure, such as cut down wages, reduce the staff trimmer, using less electricity and telephone and so on. Cutting wages will probably cause a panic among employees and make them under pressure. Because the employees may think that their company is going to pot, it is no longer as strong as before, it will not be able to pay them high wages in the future, so they had better find another job instead as soon as possible. Reducing the staff trimmer is a better method than cutting wages. Because the company can keep some capable staffs and give up a few weaker ones, it will not only save lots of money but also make the company more efficient to run its own business.
Another considerable and quick way to get enough cash is to sell fixed assets, such as office buildings, bureaus and so on. Alternatively, the company can just lease them when they are needed rather than buy them. This can save money but not suitable to do it in a long period because the cost increases monthly.
Drawing on the book Business Studies, to collect immediate cash, one quick way is chasing debtors. Ask the debtors to pay off the debts as soon as possible, if necessary, the company can use some compulsive instruments to force the debtors give the money back. On one hand of adopting this method, lots of cash can be returned sooner to meet current requirements. On the other hand, to be chased will make customers upset and lose confidence about the company. The reputation of the company in customers’ mind will decrease significantly, thus, customers may not buy the products any more in the future. Therefore, the company will make much less profits in the future and this will influence the long term run.
Opposite to chase debtors, the company can negotiate more credit or delay payments of bills. Some money can kept and available for using, and the company can return money to creditors in a longer time. To some extent, the situation of liquidity crisis will be mitigated. However, it will cause serious effects. Firstly, negotiate more credit may undermine the company’s reputation. The creditors will be doubtful of that whether the company is able to pay off the bills or not, they lose confidence. Once they consider that the company is unable to pay, they will not loan money to the company any more. Secondly, if the company mortgages something to the creditors, they may refuse to give them back. Thus, this will strongly influence the future activity of this company.
If the company is still face the liquidity crisis after adopting some methods, there is one serious way is to sell its shares to the publicly. While money coming into the company, it is also losing its control through the whole company. If the majority of shares are bought buy another company, this company will be easily taken over. This is a very serious problem.
Besides the instruments those are analysed hereinbefore, there are still some reasonable methods to solve this liquidity problem, such as replace overdrafts with long term loans, negotiate additional finance and so on. These methods are all efficacious to some extent but have their own disadvantages. Therefore, to conclude, the companies should adopt different ways to solve the liquidity problem depend on their own financial situation, so they can live through this crisis more easily.
Bibliography:
- Business Studies. Ian Marcouse, Andrew Gillespie, Barry Martin, Malcolm Surridge, Nancy wall. Hodder and Stoughton. 1999.
- Company Accounts. Maurice Pendlebury and Roger Groves. Routledge. 1994. Third Edition.
