A company can hold sizable balances at its banks and still struggle to pay on time. The problem isn't always a lack of funds; it's where they are, whether they can be used and when. Solid equity isn't enough either: a solvent company can still run out of cash, as explained in Solvency vs. liquidity.
Managing liquidity is about solving exactly that: making sure the company has the cash it needs, when it needs it, to meet its commitments without taking on unnecessary cost or risk. It's one of the core responsibilities of treasury management, and it comes down to five questions:
How much money do we have? How much can we use? How much will we need? What risks do we face? What do we need to decide?
1. Know how much money is actually available
The first task is knowing where the company's cash sits: in which accounts, at which banks, in which currencies and in which investments.
But not all of that money can be used the same way. That's why it helps to split it into three parts:
- Available: cash in operating accounts that can be used right away.
- Restricted: balances set aside for a specific purpose, such as collateral, an escrow or an account subject to contract terms. They sit at the bank, but can't be used freely.
- Invested: surpluses placed in investments. They come back to cash when they mature or are redeemed, and that takes time.
And what's available isn't entirely free either. Part of it is already earmarked for the payments due over the next few days, and part is held as a cushion against the unexpected: the minimum available reserve. What treasury can really commit is what's left above that. How that reserve is set is explained in How much cash should a company really keep on hand?
Telling these parts apart keeps you from deciding on availability that only exists on paper. That's how a consolidated cash position is built.
2. Anticipate when money will come in and go out
Liquidity isn't a snapshot: it changes every day.
The company receives customer payments, returns on its investments and loan drawdowns. At the same time it pays suppliers, payroll, taxes, capital spending and debt service. The challenge is knowing when each of those movements will happen.
That's why treasuries build cash flow forecasts over different horizons: daily, weekly, monthly and longer term. A forecast answers questions like these:
- Will cash cover next week's payments?
- When will there be surpluses that can be invested?
- When might a funding need show up?
- What happens if a collection comes in late or a payment goes out early?
What makes a forecast valuable is that it lets you decide before the problem appears. That's the job of a day-by-day cash flow forecast.
3. Decide what to do with surpluses and shortfalls
When the forecast shows surpluses, treasury has to decide what to do with them. Leaving all the money idle in low-yield accounts has an opportunity cost. Investing it without looking at upcoming commitments can leave the company short when it has to pay. The decision balances safety, liquidity and return, which is why the maturities of every surplus cash investment need to sit in the same forecast as the payments.
When the forecast shows shortfalls, the options are different: moving funds from other accounts, redeeming investments, rescheduling payments or turning to financing. Each comes with its own terms, costs and risks.
The best decision isn't necessarily the highest return or the cheapest loan, but the one that preserves the ability to pay within the company's risk limits.
4. Control liquidity risk
Not all money carries the same risk. A company may concentrate much of its cash at a single bank, hold investments that mature after it needs the funds, or depend on collections whose timing is uncertain.
Prudent management keeps track of:
- How much cash is concentrated at each bank, and the counterparty limits the company sets for them.
- When investments and obligations mature.
- Restrictions on funds.
- The minimum available reserve, and what would happen under an adverse scenario, which is what liquidity risk measures.
These controls keep treasury decisions consistent with the organization's risk policy.
5. Turn information into timely decisions
A treasury can have plenty of reports, spreadsheets, statements and forecasts and still not manage well. The information is usually spread across banks, the ERP, accounting systems and files put together by different people.
Gathering the data is only the start: it also has to be consistent, timely and understandable. That's why it matters so much to reconcile the statement against the forecast and to read data from the systems you already have instead of copying it.
Knowing that forecast cash will drop over the next fifteen days is important. It's far more useful to know which payments explain the drop, which collections could offset it, what funds are available and what decisions can be made. Information is worth something when it explains what's happening and anticipates what could happen.
6. From managing balances to managing decisions
For a long time, much of treasury's work has gone into collecting information, consolidating balances, updating forecasts and building reports. Those tasks are still necessary, but they shouldn't eat up the time needed for analysis.
Answering the five opening questions with reliable information means integrating treasury data, understanding its restrictions, projecting scenarios and keeping a record of every decision. The evolution of liquidity management isn't producing more reports or automating more spreadsheets. It's building the ability to anticipate, explain and act.
Because managing liquidity isn't just knowing how much money a company has. It's knowing what it can do with that money, when it can do it, and what each decision will lead to.
FLIQO: operational liquidity intelligence
FLIQO brings the company's treasury information together, anticipates the path of its cash and explains the figures behind every decision. It doesn't replace the treasury professional's judgment: it strengthens it with information that is integrated, explainable and auditable.
Anticipate liquidity. Understand the figures. Decide with confidence.
