What would be a primary consequence of poor liquidity management?

A primary consequence of poor liquidity management is the inability to meet short-term obligations. Liquidity refers to the ease with which assets can be converted into cash to meet immediate financial needs. If a business does not manage its liquidity effectively, it may find itself unable to pay off creditors, meet payroll, or cover other operational expenses as they come due. This can lead to severe consequences, such as damaging the company's creditworthiness, incurring late fees, or even facing bankruptcy.

Effective liquidity management ensures that a company has sufficient cash flow to navigate its short-term liabilities without jeopardizing its overall financial stability. When a business lacks liquidity, it might have to delay payments or acquire expensive short-term loans, creating additional financial strain. Thus, having solid liquidity management practices is crucial for maintaining a company's operational health and ensuring that it can fulfill its financial commitments on time.