Announcing new features for real-time, AI-assisted reconciliation. Learn more →

Learn

What is Liquidity Management?

Welcome to Learn, where we provide straightforward, easy-to-understand definitions of the payments industry.

Follow us

Liquidity management provides visibility into cash positions over past, present, and future dates and provides an overview of the financial health of a business.

Liquidity management helps the business make good operational decisions and navigate unforeseen business risks while avoiding insolvency. It also enables companies to take advantage of business opportunities as they arise, providing a competitive advantage.

Liquidity management works hand in hand with spend management, which takes a unified, cumulative view of financial resources across an organization. Spend management looks at accounts payable via a source-to-settle process that covers procurement, treasury, and finance departments. Accurate liquidity management requires insights into liabilities, cash, spend, and other transactions. This requires accurate, real-time financial information that can easily be accessed on demand.

Why is Liquidity Management Important?

Liquidity management helps companies access cash when they need it, regardless of the level of financial maturity. This cash (liquid assets) may be used to cover debt obligations, to pay for merchandise or services, or for short-term investing. Finance teams use liquidity management to strategically move funds where they are needed. For example, a CFO may review the balance sheet and see that funds currently tied up in one area can be moved to a critical short-term need to maintain day-to-day operations.

Liquidity management extends beyond a cash management strategy. Finance teams can also tap into hidden yield within supply chains. More financially mature organizations typically use this strategy if they can access the right supply chain management insights. This broader, more complex view of liquidity management allows companies to measure anticipated (and sometimes unanticipated) cash requirements that could impact liquidity. This includes missed sales targets, lump sum payments, slow inventory turnover, and variations in supply and demand.

How Does Liquidity Management Impact the Bottom Line?

Liquidity management can help finance executives get total visibility into financial data and create more accurate scenario analysis and cash forecasting. Since it also ties into supply chain management, liquidity management can help businesses make tough decisions when faced with unforeseen circumstances or other uncertainties.

Supply chain issues during the pandemic, for example, took many companies by surprise. Without proper liquidity management, volatility in the supply chain left many businesses strapped for options – and cash. With a good handle on liquid assets, however, some companies were able to take fast action and minimize disruptions to business.

Other ways liquidity management can help derive value from supply chains include:

  • Collaborations between treasury and procurement to offer early pay discounts.
  • More precise payment timing management to maximize liquidity. Treasury can work with AP to implement ideal payment terms that increase cash on hand.
  • Multilateral netting and automatic reconciliation help finance teams free up cash.

In today’s real-time and often remote world, the question of the day is, “What is our current cash position?” Liquidity management provides critical cash visibility that helps businesses quickly understand how to fund daily operations. Dynamic liquidity management has moved to the forefront as finance teams rely less on historical data and more on real-time and future cash flows.

Try Modern Treasury

See how smooth payment operations can be.

Talk to sales
More from

Learn

Learn topic image

Learn about the key processes involved in treasury management.

A clearing account acts as a temporary account that holds transactions before they are finalized or allocated to the correct permanent account.

Read more

Continuous accounting is the ongoing process of updating a business’s general ledger with reconciled bank statement transactions as soon as they become available.

Read more

Financial reporting empowers businesses to make informed financial decisions by identifying trends and tracking performance. It also offers insights into a company's assets, liabilities, and debt management strategies.

Read more

Month-end close is a critical process where the accounting team reviews and records financial transactions to close out the month.

Read more

Recoupment refers to the recovery of spent or lost funds, especially in business operations.

Read more

Treasury Management Systems (TMS) are software applications that serve to help businesses simplify their payment operations by automatically tracking things like cash flow, assets, investments, and more.

Read more

Asset risk management is essentially a fusion of asset management and risk management.

Read more

Cash forecasting is a way for companies to look at “cash in” vs. “cash out” for a business over a window of time.

Read more

Cash pooling is a centralized cash management tool that companies with multiple subsidiaries sometimes use to optimize the cash balances of all legal entities.

Read more

Liquidity management provides visibility into cash positions over past, present, and future dates and provides an overview of the financial health of a business.

Read more

Treasury management is the act of managing a company’s daily cash flows and larger-scale decisions when it comes to finances.

Read more

The 10-K is a comprehensive report mandated by the U.S. Securities and Exchange Commission (SEC) that publicly traded companies must file annually. This report provides a thorough overview of a company's financial performance over the past year.

Read more

Subscribe to Journal updates

Discover product features and get primers on the payments industry.

Subscribe

Products

Platform

Modern Treasury For

Case Studies

Insights

Documentation

Company

Legal


Popular Integrations

© Modern Treasury Corp.