Knowledge base · Accounting & tax · 6 min leestijd · 2 Sep 2026

Improving liquidity: from current ratio to cash headroom

Liquidity tells you whether you can pay your short-term obligations. Salaries, creditors, taxes. Two ratios show where you stand, and they give a different answer. This article explains both and runs through the levers.

Workers changing in a locker room at the start of a shift

The current ratio

The current ratio sets your current assets against your short-term liabilities.

current assets / short-term liabilities = current ratio

Current assets are your cash, your receivables and your stock. Short-term liabilities are your debts falling due within a year, such as creditors and payroll obligations.

As a rule of thumb, 1.5 is often quoted as a healthy figure. What counts as healthy differs per sector, so compare above all with your own history.

The quick ratio, and why it is sharper

The current ratio counts your stock as current. In practice stock is rarely turned into cash within thirty days.

The quick ratio therefore leaves the stock out.

(cash + receivables) / short-term liabilities = quick ratio

Is your current ratio at 1.5 and your quick ratio well below it? Then you know where your money sits. In your stock.

What you can pull on

Structural improvements take time. Higher margins and tighter receivables management do work, but not from next week.

In the short term there are four items:

Assets you no longer use. Machines and plant standing idle hold money.
Your buying. Looking critically at stock levels lowers the amount tied up on the shelf.
Your creditor terms. Agreeing payment moments with suppliers creates room, provided you keep to what you agree.
Your receivables position. That is usually the largest item, and the one quickest to convert.

What working capital finance does to your ratio

Factoring turns your receivables position into cash. Your quick ratio improves straight away, because receivables become cash.

Whether your current ratio moves with it depends on the accounting treatment. Whether the structure is on or off balance sheet is set out in factoring and your annual accounts.

Inventory finance does the same on the stock side. That is precisely the item holding your quick ratio down.

When a ratio is not the problem

A low quick ratio alongside a full order book is not a weakness. It is a timing problem between delivering and being paid.

Growth makes that problem bigger. More turnover means more pre-funding of the same clients.

Want to know which form suits? Read which type of finance fits you.

About the author

Jaap van Aalst

Commercieel directeur, SOOF Finance

Jaap van Aalst started his first business almost thirty years ago, in staffing and secondment. That is where he saw for himself how many opportunities are lost when money sits too long in unpaid invoices.

Around eighteen years ago he moved into the factoring world, as commercial director. Since then he has sat across the table from countless business owners and seen at first hand what financing questions look like in practice. He looks further than the balance sheet: what the business does, where the opportunities are, and which form of finance genuinely moves it forward.

That is also the basis of his work at SOOF Finance. His starting point is simple: finance is not an end in itself, but a means by which a good entrepreneur delivers on their plans.

Ask your question

Frequently asked questions

As a rule of thumb, 1.5 is quoted. That figure says little without your sector and your own history beside it.

That depends on the accounting treatment. On and off balance sheet work out differently, and that difference is explained in factoring and your annual accounts.

Yes. You turn stock into cash, and the quick ratio counts only cash and receivables.