What Strategies Can Be Used to Manage Liquidity Risk?
There are several strategies that business leaders can deploy to manage liquidity risk effectively:
1. Maintaining Cash Reserves: Keeping a buffer of liquid assets can provide a safety net during periods of cash shortfall. 2. Diversifying Funding Sources: Relying on multiple financing options, such as credit lines, loans, and equity, can reduce dependency on any single source. 3. Efficient Working Capital Management: Streamlining processes like inventory management, receivables, and payables can improve cash flow. 4. Contingency Planning: Developing and maintaining a robust contingency plan can help a business respond quickly to unexpected liquidity challenges.