The word "illiquid" in everyday life has many meanings, but for financiers it means a product that is stuck in a warehouse. But why is this happening? And are there any ways to prevent this?
Raw materials or finished goods that are not used by the enterprise and are stored in stock are called illiquid assets. These can be both expired goods, and therefore not subject to liquidation, and products of very high quality, which only due to circumstances were delayed in warehouses.
But with the definition of an illiquid product, a certain caution should be exercised and not in a hurry. For example, if a product is delayed in the warehouse for 2-3 months, can it be considered illiquid and strive to get rid of it? There is no definite answer, since the dynamics of sales of a particular company is of great importance. If it is normal for her to sell such an amount of product on average per month, then what is in the warehouse is illiquid. And if such a product is usually sold out in six months, then it cannot be called illiquid.
Where does illiquid liquid come from?
Among the most important reasons for the emergence of illiquid assets are the following:
- loss of product quality when stored for too long;
- overestimated sales plan, as a result of which the volume of purchases is incorrectly determined, and balances accumulate in warehouses;
- errors in warehouse storage, when, for example, goods in safety stock can simply be forgotten;
- refusal of suppliers to replace a defective product, which often happens if the company cooperates with monopolists or random counterparties;
- a batch of a product was purchased, the sale of which is not at all certain - this often happens with new products on the market, since the intensity of their sales is very difficult to predict;
- conclusion of barter transactions, as a result of which the organization may well receive a product with dubious liquidity.
These cases are most common, but they do not exhaust the entire list of reasons why illiquid assets are formed in warehouses. This can happen if demand suddenly drops, or if the management of the enterprise has forbidden to sell the product at a reduced price. In addition, the product can be imposed by the supplier, and there is no real need for it. Or the size / amount of the remainder exceeds the norm required by the buyer, or even turns out to be much less than it.
Prevention of illiquid assets
The best prevention of a decrease in product liquidity is considered to be timely tracking of stocks in the early stages. But other measures can also be effective:
- once every 2 weeks, it is necessary to draw up a report on the goods, the balance of which has not changed within a month (except for cases when such a stock is justified), the report must include a list of the goods stored in the warehouse, its quantity in balance, as well as the date when the goods were last once was issued;
- at the same time, it is required to draw up a report on products whose sales per month did not exceed 5% of the balance - this makes it possible to detect hidden illiquid assets;
- once a month, managers of the organization must hold meetings, the task of which is to jointly find an option for the implementation of illiquid assets or other use of it.
To sell an illiquid product that is already in the warehouse, you need to find out its real market value, at which such a product will be quickly bought, and it is better to forget about the book value. Next, you need to create a price list and release the product for sale if its expiration date has not expired.
