Effective liquidity management has always been crucial in any environment, essentially ensuring that your cash is in the right place, at the right time and in the right currency. These factors, coupled with a volatile macroeconomic environment, create challenges for treasurers looking to optimize operating cash, maximize yield and manage risks effectively and efficiently.
So how can treasurers foster an effective liquidity management structure? Here are five key strategies to consider:
1. Digitalize and Automate
Digitalization can play a significant role in enhancing liquidity management by providing real-time access to financial information, streamlining processes and improving efficiencies. For example, digitalization of operations can lead to further automation of various liquidity management tasks such as cash flow forecasting, invoice processing and payment reconciliation, which, in turn, reduces the need for manual intervention and can save time and resources.
2. Seek Visibility and Control
Centralizing cash positions either into a single location or a main header account gives treasurers better visibility into global cash positions, helps optimize various currency balances, minimizes idle balances and simplifies how funds are moved globally.
3. Harness Bank Relationships
Effective liquidity management is not achieved alone – and curating strong and effective relationships with banking partners can play an important role. When choosing a banking partner, treasurers should consider whether the bank’s credit rating, scale, on- and off-balance sheet capabilities and functionality meet the treasurer’s cash and investment objectives. The bank’s suite of liquidity management solutions should also be evaluated, such as sweeping and pooling capabilities, to have greater access to data for cash forecasting and investment decisions.
4. Leverage Technology
Having access to the latest technologies will be key in cash management solutions of the future. That is why banks are increasing investments in new and innovative payment rails, such as leveraging the blockchain and real-time payments that enable greater transparency, instant settlements, and improved data sharing. APIs also help improve the ways in which treasurers can seamlessly manage a firm’s liquidity through automation.
5. Investigate Investment Policies
It is important to evaluate all potential investment choices to ensure investments are sufficiently diversified from a risk management perspective. It’s also prudent to ask banking partners what type of end-to-end investment options they offer for both operating and strategic cash positions.
As treasurers look to navigate macroeconomic factors such as higher interest rates, inflation pressures and the broader global markets, the importance of effective and efficient liquidity management will continue to loom large over treasury teams. By prioritizing these five considerations treasurers can potentially set themselves up to not only survive unpredictable market conditions, but also potentially thrive.
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