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Treasury’s Strategic Role in Liquidity Planning

The time is right to evolve cash forecasting.

By Thomas Gavaghan | February 23, 2023 at 03:05 PM
Stock illustration: Businesspeople using lever to lift cash

Corporate treasury and finance teams are grappling with a number of crises—record-setting inflation, foreign exchange (FX) volatility, supply-chain shortages, and tightening of credit, to name a few. Together, these challenges are impacting every stage of the cash flow cycle. Meanwhile, rising interest rates have ended the era of cheap money.

Precision and a full view of financial data have never been more important to CFOs and treasurers, especially those who grew up in a zero-interest-rate environment where fewer variables impacted bottom-line growth. In 2023, finance chiefs are tasking their teams with developing new practices to more precisely scrutinize and manage liquidity across multiple scenarios, and through both short- and long-term time horizons, to improve their margins of success.

Liquidity planning is an evolution of traditional cash forecasting that surrounds the cash forecast with data which supports better-informed liquidity decisions. Liquidity planning makes the forecast actionable by connecting the outcome of cash forecasting—how much cash the organization expects to have—with information about the levers the CFO and treasurer can pull to meet cash flow targets and mobilize cash. These levers may include investment, borrowing, credit facilities, and aspects of the cash conversion cycle. Liquidity planning data tells finance teams where sources of cash are so that they can execute decisions rapidly, enterprisewide.

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