Several years of economic disruptions required businesses across the world to dive deep into their crisis management playbook. Changes in supply chains, customer behavior, consumer spending, credit costs and access to capital can profoundly impact revenue and expenses.

One of the more critical priorities as business models evolve is a refined focus on liquidity management strategies.

There is a breadth of options and factors to consider, and every company’s liquidity needs are different. No matter your business’ size, these options can help you evaluate your short- and long-term funding needs, while keeping risk and resiliency in mind.

1. Understand your funding needs

Why it matters today

Amid global economic uncertainty, it’s important to maintain a disciplined and pragmatic approach to liquidity management. If you have enough cash on hand to fund your operations, ramping up your debt could lead to unnecessary costs and liability. And if yields on excess cash become diminished, the value derived from the improvement of working capital will be even more important.

How you can prepare for tomorrow

There’s a natural tendency to take swift action in times of crisis, but it’s critical to have a strategic focus for your business and stay well-positioned for the long term. A few ways to do that may include reducing operating costs, minimizing the impact of unexpected disruptions and continuing to review business investment opportunities via capital spending or acquisitions. 

Questions to consider

• How much cash do you need today to support daily operational needs?
• What are your short- and long-term funding needs?
• What are your future cash flows and what assumptions have you used to calculate them?
• Have you considered the impact of foreign exchange and interest rate risk?
• Have you calculated your capital expenditures and debt obligations?

2. Identify sources of liquidity and cash

Why it matters today

When there are elevated credit spreads and volatility in the lending markets, identifying and leveraging sources of internal or intercompany funding are crucial. Idle cash balances held across different accounts, entities or regions can be put to work to fund operations, pay down debt or help build cash reserves. Non-operating balances held on deposit accounts or in low-yield investment alternatives should also be considered for strategic deployment.

How you can prepare for tomorrow

With the expectation that finance executives will be asked to do more with less, it’s important to have a clear line of sight and access to liquidity across your organization. Evaluate the costs and benefits of holding idle or low-yield, non-operating deposit balances and look for ways to centralize your liquidity.

Questions to consider

• Where does cash sit within your organization (accounts, entities, jurisdictions)?
• How do you manage liquidity and funding to ensure optimal use across the organization?
• Do you have idle or trapped cash that could be put to better use?
• How are you managing your reserve/strategic cash (non-operating balances)?
• What are the current investment yields and returns on your reserve/strategic cash?
• Do you have funds overseas that could be repatriated?

3. Engage in thoughtful forecasting

Why it matters today

Forecasting in times of unprecedented volatility and change can be particularly challenging. But it’s important to have proper oversight of your cash positions so you can make informed decisions for the future.

How you can prepare for tomorrow

Reviewing cash flow position and forecast daily or weekly can help you keep an eye on liquidity needs. This may need to happen even more than once per day during a crisis. It’s also important to develop future projections based on suppliers and customers, receivables and payables data, current macroeconomic indicators and the risk of disruption for your industry.

Questions to consider

• How do you ensure oversight of your cash positions?
• What internal structures and IT tools do you have in place to manage your cash?
• How many banking providers do you work with?
• Does anyone provide you a consolidated view of your global cash positions?
• How often do you review your account structure and provider network?

By following these steps you can help your business remain resilient in the face of uncertain economic conditions.