Liquidity management is the planning and control of cash and near-cash resources so obligations can be met when due. It balances availability, currency, timing, concentration, return and funding risk.
Which inputs matter?
- Opening cash by entity and currency
- Expected customer receipts
- Supplier, payroll and tax payments
- Debt and facility availability
- Restricted or trapped cash
- Settlement and banking cutoffs
How is a short-term position calculated?
If usable opening cash is $500,000, expected receipts are $300,000 and committed outflows are $720,000, projected closing liquidity is $500,000 + $300,000 − $720,000 = $80,000.
Illustrative liquidity forecast
| Calculation step | Amount | Treatment |
|---|---|---|
| Usable opening cash | $500,000 | Available at start |
| Expected receipts | $300,000 | Forecast inflow |
| Committed outflows | ($720,000) | Forecast payment |
| Projected closing liquidity | $80,000 | $500,000 + $300,000 − $720,000 |
| Minimum buffer | $100,000 | $20,000 forecast shortfall |
Expected receipts should be probability- and timing-adjusted rather than treated as certain cash.
Liquidity vs. profitability
A profitable business can face a cash shortfall if receipts arrive after obligations fall due. Liquidity focuses on timing and availability, while profitability measures income over a period.
How can liquidity be managed?
Improve forecasting, centralize visibility, accelerate collection, schedule payments, use currency matching, maintain buffers and arrange committed funding. Controls should prevent cash concentration from disrupting local obligations.
