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Cash & Liquidity Management

Effective liquidity management is as much an art as a science. The main objectives of cash and liquidity management are to free up all the company's cash whilst minimising processing costs, to make this liquidity available when and where it is required, and to make the most profitable use of any cash surpluses and/or if there are cash deficits to minimise funding costs. 

The shape of liquidity management is clear, vase shaped and in two phases, as shown below. In the first phase releasing and centralizing as much liquidity as possible at the same time as minimizing counter-party risk, and in the second using a small number of key banks to maximize the returns from excess cash or minimize the cost of funding cash shortfalls.


Source: J&W Associates Copyright© 2011

Cash and liquidity management is a daily, continuous operation. It also requires continuous commitment to fine-tuning and improving all the cash management processes and systems involved. This will ensure your company has the most cost-effective, optimum liquidity management solution: 

Source: J&W Associates Copyright© 2011


Corporate liquidity management is becoming more and more important as commercial banks move away from traditional lending, and credit is becoming scarcer, as banks are forced by the regulators to hold more reserves. 

The focus of corporate cash and liquidity management focus is moving from single country to multi-country, and increasingly to regional or even global. Also companies of all sizes are rationalising and centralising their liquidity management to ensure greater control and consistency, and Sarbanes Oxley compliance. Companies are using as few banks, as is strategically sensible given the liquidity crunch, but this does not necessarily mean that companies always reduce the number of banks. In some groups, the need to manage counter-party risk has resulted in the same number of banking relations being maintained, whilst others have actually increased the number of banks to minimise exposures to any one bank. 

Types of Solution

Companies need to aim for the optimal solution for their company, their type of business not necessarily the combination of systems and services that other companies use. The first decision is what type of liquidity management solution would be effective in their company: a fully automated solution - the so called Passive Solution, or an Active Solution in which they have much more active involvement.

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