What is a liquid asset in business?

A business can look strong on paper and still run into trouble.

It may own equipment, property, or long-term investments. It may even be profitable. But when payroll is due or a supplier needs payment, only one thing matters, cash. That gap between value and cash is where liquidity comes in.

This guide explains what a liquid asset is, how liquidity works in business, and why it matters for decision-makers.

Table of contents
What is a liquid asset? Why liquidity matters to a business Wise Business: Improving access to global working capital FAQs

What is a liquid asset?

A liquid asset is something a business owns that it can convert into cash quickly, without losing much value.

Cash itself is the most liquid asset. Money in a bank account works the same way. Other assets can also be liquid, but only if they can be sold or accessed fast and at a fair price. Liquidity is not about how valuable something is.It is about how usable it is when timing matters.

How liquidity works in practice

Liquidity depends on three things:

1. Speed: How quickly the asset turns into cash.
2. Certainty: Whether you know you will get close to its expected value.
3. Access: Whether you can use the cash without penalties, delays, or approvals.

An asset that takes months to sell, requires negotiation, or loses value under pressure is not very liquid. Even if it is expensive.

Take an example of a small Australian manufacturing business that needs to pay a supplier within seven days to avoid a production delay.

The business owns:

• $80,000 in an Australian business bank account
• $300,000 worth of equipment
• A warehouse valued at $1 million

On paper, the business is valuable. But only the cash in the bank is liquid.

The equipment and warehouse could be sold, but that would take time, involve negotiations, and likely result in a lower price if sold quickly. They fail on speed, certainty, and access.

In this situation, liquidity is not about how much the business owns. It is about which assets can be used when timing matters.

How liquid assets help businesses

They cover short-term costs like salaries, rent, taxes, and supplier payments without delays or emergency borrowing. This keeps daily operations stable.

They also help manage unexpected expenses and cash-flow gaps during slow periods. With cash available, businesses can respond without pressure. When opportunities come up, liquid assets allow quick decisions without waiting for funds to be released.

Practical examples of liquid assets

Not all liquid assets look the same. Some are cash. Others behave like cash because they can be converted quickly and with little loss in value.

1. Cash and Australian dollars (AUD): This includes physical cash and money held in Australian dollar accounts, including balances in business accounts. These are fully liquid assets. No conversion is needed.
2. Australian business bank accounts: Money held in Australian business bank accounts counts as liquid capital. Businesses use these funds for payroll, rent, tax payments, and supplier invoices.
3. Accounts receivable: Invoices issued to customers but not yet paid are often treated as liquid assets. They represent expected cash inflows, though timing can vary. Delays or disputes can reduce how reliable these assets are.
4. Some investments are liquid because they trade in active markets like the ASX. These include listed shares, exchange-traded funds, and short-term bonds. How quickly they convert to cash depends on demand and market conditions.
5. Treasury and cash-equivalent instruments: This includes Australian government treasury notes, money market instruments, and short-term deposits with flexible access. These assets are designed for stability and short holding periods, which makes them easier to access when cash is needed.

Difference between liquid assets vs fixed assets

Liquid assets and fixed assets serve different purposes in a business.

Liquid assets help with everyday needs. They are used to pay salaries, rent, taxes, and suppliers. They also help when income slows or costs increase. Because they are easy to access, liquid assets give businesses flexibility without needing loans or asset sales.

Fixed assets support long-term work. These include property, equipment, vehicles, and long-term investments. They help businesses operate, produce, and grow over time. But they are harder to sell quickly and often lose value if sold in a hurry.

Businesses need enough liquid assets to cover short-term expenses. When too much capital is tied up in fixed assets, meeting routine payments can become difficult. Fixed assets are still necessary to operate and grow. The appropriate mix depends on the business model, cash-flow stability, and risk tolerance.

Difference between solvency and liquidity

Liquidity is about the short term. It’s whether a business has enough cash to pay its bills right now, things like salaries, rent, taxes, and supplier payments.

Solvency is about the long term. It’s whether the business can keep going over time, based on what it owns, what it owes, and how much debt it has.

A business can be solvent but not liquid. For example, it might own expensive property or equipment but still struggle to pay this month’s bills because those assets can’t be turned into cash quickly. It can also be liquid but not solvent.

The business may have cash today, but if its debt keeps growing faster than its income, that cash won’t last. That’s why both matter. Liquidity keeps things running day to day. Solvency decides whether the business will last.

Difference between working capital and liquid assets?

Working capital and liquid assets are related, but they answer different questions. Working capital measures short-term financial health. It is calculated as:

Working capital = Current assets − Current liabilities

In Australia, many businesses track this to ensure they can meet obligations such as wages, GST, PAYG withholding, rent, and supplier payments.

A positive working capital position suggests the business can cover near-term commitments. But it does not guarantee cash is available when needed.

Liquid assets focus on speed and access. They show how quickly value can be turned into cash without loss.

A business can have positive working capital and still face cash pressure if most current assets are slow to convert. Common examples include unpaid invoices or inventory that takes time to sell.

In short:

• Working capital shows capacity
• Liquidity shows readiness

Why liquidity matters to a business

Liquidity influences how leaders make decisions when things get tight. It affects control, confidence, and the options available.

1. A buffer when costs appear:
Costs don’t always come on schedule. Equipment can break, customers may pay late, and expenses can rise without notice. When a business has liquidity, there’s time to deal with these issues without rushing into loans or quick cost cuts.

2. Staying reliable and credible:
Having cash on hand helps a business pay things like payroll, GST, and PAYG on time. It also helps maintain good relationships with suppliers and shows lenders that the business can meet its commitments.

3. It enables faster decisions
Liquidity enables action when timing matters. It allows businesses to:

• Secure early-payment discounts
• Lock in supply ahead of demand
• Fund pilots or market entry
• Respond to opportunities without delay

In practice, speed often depends less on strategy and more on access to cash.

4. It improves credit terms
Australian lenders and financial partners closely assess liquidity ratios.

Businesses with strong liquidity often see:

• Better loan terms
• Higher credit limits
• Lower perceived risk

Liquidity signals discipline and financial control.

5. It reduces forced decisions
Weak liquidity forces poor timing. Assets may need to be sold quickly. Investments may be cut early. Losses become permanent.

Liquid assets reduce pressure. They allow decisions to align with strategy rather than urgency.

Wise Business: Improving access to global working capital

Managing liquidity becomes more complex when your business operates across borders, as slow bank transfers and currency conversion times can restrict access to your funds.

Wise Business helps solve this friction by allowing you to hold and manage multiple currencies in one place, so you can pay suppliers or receive revenue without unnecessary delays.

A Wise Business account allows users to can send, receive, and hold in multiple currencies. Experience hassle-free global transactions by transacting like a local business. Here's what you get with a Wise Business account:

• Free to register — Hold and convert between 40+ currencies. Send to 140+ countries
• Debit cards for you and your team, which you can use in 150+ countries
• Multi-user access for team members, with ways to control and manage permissions
• Pay up to 1,000 recipients at once with the Wise batch payments feature
• Integrate with your favourite cloud accounting solutions like Xero, QuickBooks, and more
• Get account details to receive in 8+ currencies for a one-time fee of 65 AUD
• Earn potential returns** on your everyday money through Wise Interest

Sign up for the Wise Business account! 🚀

This general advice does not take into account your objectives, financial circumstances or needs and you should consider if it is appropriate for you.
**Capital at risk, growth not guaranteed. Interest is the name of a custody and nominee service provided by Wise Australia Investments Pty Ltd in partnership with Franklin Templeton.

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* Wise Interest is a custody and nominee service offered through Wise Australia Investments Pty Ltd (ACN 659 961 083) (AFSL: 545411). Franklin Templeton is the issuer and manager of the Franklin Government Cash Fund. Capital at risk. Growth not guaranteed. Terms and conditions apply. Please refer to the Wise Australia Interest Legal page for Wise Australia Investment's Financial Services Guide and the fund's Product Disclosure Statement to see if this product is right for you.

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FAQs

1. Are shares liquid assets?
Shares are usually liquid assets because they trade in active markets. Liquidity depends on demand, volume, and market conditions.

2. Are stocks liquid assets?
Yes. Most publicly traded stocks are treated as liquid assets. However, the speed and price of conversion can vary based on market conditions.

3. Is a line of credit considered a liquid asset?
No. A line of credit is a financing facility, not an asset. It provides access to borrowed funds but does not represent value owned by the business.