Ismaila Sarr's agent revealed Liverpool agreed personal terms with the Watford winger over the summer but the transfer fell through due to the Reds' lack of funds.
The 22-year-old winger was part of the Hornets side that was relegated from the Premier League last summer but ended up staying with Watford this season in the Championship as he failed to secure a summer move.
Agent Thierno Seydi claimed that the Reds failed to stump up the £35million price tag required to complete the deal - even though Liverpool winger Sadio Mane was helping his countryman find a place to live on Merseyside.
Seydi told Pan African Football: 'With Liverpool, we were at the stage of signing the contract to bind the Reds to Ismaila Sarr.
'Everything was set, the monthly salary and the length of the deal. I even asked Sadio Mane to find him an apartment.
'But in the end, the English club were unable to put 40m euros (£35m) on the table to finalise the deal.
The Senegalese winger has five goals and six assists so far in the Championship this term, with the Hornets lying in fourth place - nine points behind second-tier leaders Brentford.
However, Sarr impressed Liverpool the season before in the Premier League by scoring twice in Watford's 3-0 win over Jurgen Klopp's side - which was the Reds' first league defeat of their title-winning campaign.
Seydi also claimed Manchester United approached Watford over a deal for the winger but the Red Devils offered a simple loan deal with no obligation or option to sign the player permanently after this season.
The agent added: 'Over the summer, (Manchester United) wanted to sign the Senegalese forward. At the last moment, they offered a loan without any option to buy.
'Watford did not accept (it) because the loan would have to have been accompanied by an option to buy - with Manchester United having first refusal (to make the deal permanent).'
Liverpool are currently struggling in their Premier League title defence, with last Sunday's 4-1 defeat to Manchester City leaving them ten points behind Pep Guardiola's top-flight leaders having played a game less than their rivals.
Klopp's Reds, who currently lie fourth in the table, were slammed by Sky Sports' Graeme Souness for not investing enough last summer after winning their first top-flight title in 30 years.
The pundit told Sky after the City defeat: 'When you're at the top of the tree, that's when you go and invest big.'
When asked whether the financial crisis in football following the coronavirus pandemic influenced their lack of investment, Souness added: 'I would think if you're the current champions, European champions year before, I'm sure you could find a bank willing to support you. That's the time to invest.'
Seydi, meanwhile, believes Liverpool and Manchester United's inability to produce the funds for Sarr shows how financially unstable the big European clubs are in this global pandemic.
The agent claimed: 'If the English clubs, which once dominated the transfer window, have difficulty raising funds - that reflects the depth of the crisis affecting football.
'Today, the damage is immeasurable with the financial and economic crisis facing clubs. Almost all clubs are in the red.'