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Four ways to effectively manage liquidity in uncertain times

The Israel-Palestine conflict escalating to unforeseen levels may add to global economic uncertainty, increase oil prices, lead to sustained disruptions in supply chains, impact worldwide stock markets, and drive up inflation.

Additionally, borrowing costs in the US, the UK, Germany, and Italy have risen to their highest level in years amid growing expectations that interest rates will stay higher for longer. The 10-year US Treasury yield, which reflects the cost of US government’s debt last week hit 4.8%, the highest since 2007, and the yield on the 30-year US treasury bond briefly crossed 5% for the first time in 16 years.

Furthermore, the German 10-year yield climbed above 3% for the first time since 2011, and Japan’s 30-year bond yield reached its highest level since 2013. This means that the debt interest payments or cost of servicing the debt pile will continue to be a heavy burden on these governments in the coming year and may also raise financing costs for corporations.  This along with a stronger dollar could potentially slow down the US and global economy over the next year, weigh on investment and spending, and add to the uncertainty over long-term growth.

With geopolitical risks back in focus and uncertainty shrouding the global economy, cash and liquidity management is expected to remain top of mind for treasury practitioners. Here are four ways to manage liquidity effectively that can help corporations chart their way through this uncertain economic and business environment.

Ensure real-time visibility over cash flow and financial data

Real-time visibility into cash flow and financial data is a must-have for corporations during the upcoming year.

“The first task for all companies is to get real-time visibility. You need to prepare for this”, said Ron Chakravarti, Global Head of Client Advisory, Treasury and Trade Solutions at Citi, in the first edition of The Treasury Management Playbook series, produced by Citi in collaboration with PYMNTS.

Having an accurate, unrestricted, and up-to-date view into an organisation’s current cash position helps treasury professionals build a consolidated view of cash and liquidity across their businesses around the world. Additionally, it makes it easier for treasury executives to respond to market fluctuations, complement real-time payments with real-time balance and transaction reporting, forecast liquidity and cash position reliably and efficiently, simulate future what-if scenarios and create plans based on those what-if scenarios to reduce liquidity risk.

Accelerate digital transformation through treasury technology and intelligence

In the next 12 months, treasurers must speed up digital transformation and automation efforts to unlock efficiencies in the treasury department.

Digitisation can aid in improving cashflow visibility and optimising liquidity across the corporation, as well as strengthening risk management and cybersecurity. In this regard, automating manual and repetitive tasks, including the reconciliation process, should continue to be a priority for treasury departments.

Blockchain, open banking and application programming interfaces (APIs), cloud-based TMS, robotic process automation (RPA)artificial intelligence (AI), machine learning (ML) and big data analytics are key technologies dominating the corporate treasury and finance discourse. Leveraging these technologies will help companies reduce costs, increase operational efficiency, focus on strategic and value-added activities, and gain competitive advantage.

Given that data has now become a vital business asset for every organisation, the power of big data technologies ought to be harnessed by treasury professionals to uncover smart treasury insights hidden within vast amounts of data.

Treasury technology advances and investments through adoption of emerging technologies such as AI and ML for cash flow forecasting, credit risk management, fraud detection and prevention, regulatory compliance, variance analysis and advanced scenario modelling will help companies prudently manage liquidity demands, improve supply chain resilience, mitigate cybersecurity threats, and make intelligent borrowing, investment, and financial decisions.

Make accurate cash forecasting a focal point for the organization

Cash flow forecasting is an essential and powerful tool for corporate treasurers that allows them to better understand the future of their company’s most precious liquid asset: cash.

Because cash is king and treasury is responsible for and owns cash, effective liquidity management hinges on accurate cash forecasting and is vital in making key cash and liquidity management decisions.

“No treasurer has a crystal ball or time machine, but organizations can provide the next-best thing: real-time data. Offering treasurers as much visibility as possible raises their odds of interpreting the nuances of the current picture and correctly guessing what is on the horizon”, The Treasury Management Playbook advocates.

In addition to relying on real-time data, treasurers have depended on sophisticated statistical models that lean on repeating trends in data to forecast an outcome.

For a more advanced approach beyond statistical models, it is recommended that corporate treasurers adopt ML and AI automation tools within their existing systems to identify complex patterns in cash usage, capture information at the micro-level (for example, customer level for accounts receivable collections), and establish a flexible, well-oiled, and real-time cash forecasting process that will be quick to adapt to a changing business environment.

AI and ML also more accurately anticipate or predict future cash inflows, outflows and liquidity requirements. This improves the quality of the forecast, which enables corporations to seize relevant opportunities while also serving as an early warning system for potential cash shortfalls.

Here it is pertinent to mention that any cash forecasting process relies upon a well-designed forecasting model. This model needs to be simple, tested, constantly monitored, adjusted where necessary, and tailored to the objectives of the corporation and its business needs.

A forecast model typically gathers two types of cash flow data: actual data and forecast data. Achieving excellence in cash forecasting entails close monitoring of the accuracy of the forecasts and following up on the deviation between your forecasts and your actuals.

By comparing your actuals with your forecasts, you can understand where you are doing well and where you must improve, as well as unearth the causes of the inaccuracies. This is an essential step in the forecasting process to prevent the recurrence of similar forecast errors in the future.

Finally, your cash forecast must account for major one-off expenses that can significantly impact cash positioning. These one-time items or costs can arise from various areas (legal, procurement, sales and more) and including them in the forecast will ensure greater accuracy.

Adopt a unified liquidity management strategy

According to the IDC white paper (commissioned by  Kyriba) titled A New Practice Area Emerges for CFOs: Enterprise-wide Liquidity Management, more organizations need to roll out a cohesive and “unified” enterprise liquidity management strategy.

IDC recommends a holistic and unified liquidity management strategy, a companywide approach to liquidity management that incorporates feedback from all departments – top finance leaders and even the broader business managers.

The key attributes of a unified liquidity management process, as per IDC, encompass centralisation of liquidity data to streamline financial operations, access to deep analytics to better predict future liquidity, development of a collaborative environment for all operational decision makers and stakeholders, seamless integration of data flows between internal and external data sources and applications, and need for real-time data to construct accurate forecasts and market simulations to optimise decision making.

With economic uncertainty on the rise, challenges will continue to mount for treasurers and their departments, even as they remain vigilant to spot the next crisis and prepare for it. In such an environment, the importance of prudent cash and liquidity management has increased significantly, and so has the need for an enterprise liquidity management approach.

Besides the need to adopt a cohesive liquidity management strategy, the IDC white paper advocates the appointment of a chief liquidity officer that will act as a central point of authority to develop, manage and optimise a unified liquidity management strategy to ensure alignment with a company’s overall business objectives.


As global business leaders, finance chiefs, treasurers and their teams gear up to assess whether higher yielding-debt and the surging Israeli-Palestinian violence will impact their earnings power and add risks to global economic outlook, it will be imperative for corporations to scale investments in financial tools and automation solutions to enhance real-time visibility and improve the accuracy of financial data and cash flow forecasting.

In addition, deploying strategic initiatives to manage liquidity holistically, and making prudent liquidity management a top priority, may help in offering a modicum of certainty or stability to corporate treasury and finance departments, and mitigate the negative impact of geopolitical conflict that could otherwise put their company’s liquidity at risk.

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