Maintaining financial liquidity is crucial in running a business. Even its temporary loss may be the first step towards a debt trap that will be difficult to get out of. A credit limit is one way to protect against such a scenario.
Financial liquidity, understood as the ability to pay its liabilities, plays a key role in assessing the company’s financial condition. However, it is difficult for a company to fulfill its obligations towards suppliers and tax authorities if it cooperates with an unreliable contractor who is late in paying the debts arising from issued invoices.
Credit limit, or what?
Therefore, the enterprise should create such facilities that even temporary difficulties in recovering receivables do not undermine its financial liquidity.
This term covers access to additional funds within your company account. It is started automatically by the bank or at the entrepreneur’s request.
The credit limit allows the customer to use the money at any time – depending on their needs and expectations. It is worth emphasizing that the funds granted under this instrument can be used both for non-cash transactions (including those carried out on the Internet) and for cash withdrawals.
The way to current business expenses
The advantage of the credit limit is quick access to money that can be used for any purpose. In this way, you can regulate current expenses, e.g. related to the payment of invoices from suppliers, utility bills or the payment of wages to employees.
In fact, it is only up to the customer (the enterprise) that he will use these easily available funds.
Credit limit and financial liquidity
Financial liquidity depends on regular inflows to the company account. While contractors regularly pay their liabilities, the company has no problems meeting its obligations.
The situation becomes more complicated when even a delay of several days causes a stagnation in payments. Then, the disruption of financial liquidity can lead to serious problems, including bankruptcy.
Having a credit limit in a bank account, the company can reach for additional funds at any time. This means that it is able to settle its obligations without having to wait for payment from contractors.
Ting customer must immediately use the entire exercise his limit, and only as much as it needs to settle debts. The Bank will charge a dsetki calculated solely from the resources used, rather than the maximum amount granted.
Why is it worth ensuring financial liquidity?
Financial liquidity is an important parameter that allows assessing the condition of an enterprise. Thanks to it, the company is able, for example, to pay its obligations early, and thus to obtain attractive discounts from suppliers.
Good financial condition also translates into no risk of losing credibility and great flexibility in financial management. It can also be an important argument in talks with a bank regarding an investment loan or an external investor.
Overdraft is one of the ways to take care of your company’s financial liquidity. Every owner should consider having this credit instrument.