Enterprise Liquidity – How Important is it?

Clara Chua | 27 December 2021

Enterprise Liquidity – is it crucial in the current pandemic setting?

With the Omicron variant setting in, the leading concern for every impacted company surrounds the availability of cash and it’s ability to be utilised where needed – raising the importance of enterprise liquidity for every chief financial officer. To also make advanced decisions, the finance teams would not only require visibility of the company’s cash position now, but in the future as well. 

The brilliance of liquidity planning is in addressing shortfalls, where the company may be short on cash to cover unexpected expenses, while looking for times where additional cash can be used for other investments or growth opportunities. Within that, payables management is another fundamental of good liquidity management, ensuring the maintenance of outstanding liabilities and debts to third parties.

This unprecedented event has also uncovered the benefits of investing in technologies and skills to further enhance the liquidity planning process, providing timely data to finance and company leaders for critical decision making.

Tracking Liquidity

Most companies should continue directing focus on integrating control and improving efficiency with the use of standard technology such as, enterprise resource planning (ERP) or treasury management systems (TMS) to optimise processes. Receiving a concurrent view of cash coming in from receivables and going out for payables, the data can be analysed daily to present recommendations to the higher management.

For those that have yet to initiate such practises, now is the time to start. Maintaining appropriate levels of enterprise liquidity is dependent on having a direct view on the company’s subsequent short, medium and long-term obligations. Given that banks and treasury technology providers closely collaborate with one another, they can offer easy-to-implement solutions that require no additional technology infrastructure investment to prepare a company for the next step.

Liquidity Management Response to COVID-19

As clients may be facing their own liquidity struggles, one crucial advantage would be acquiring real-time metrics instead of waiting for semi-monthly reports. An ideal COVID-19 dashboard would capture cash flow metrics such as, cash receipts, late balances, billing volume and accounts payable, also including a range of cross-functional business metrics.

The purpose is to provide a consistent perspective to client consultations and help understand the changes in billings and collections. Client account teams would more likely succeed in renegotiation of rates and payment terms, facilitate change on existing contracts and prepare offers based on accurate data.

Accounting management softwares can greatly help refine the company’s liquidity position by automating key functionality that facilitate cash inflow and outflow over a predefined period in the future. Another tool often implemented to manage liquidity risks is netting portfolio management techniques, which can assist a company in consolidating debt obligations.

Usually applied when a company has multiple outstanding invoices from the same vendor – they then proceed to net third-party invoices and agree on the total remaining amount that will be paid by a certain date. By consolidating into a single payment, the company will lower the number of instances in which it must use their cash reserves.

Challenges of Liquidity Management

While liquidity planning may be a cornerstone of every treasury and finance department, many challenges are affected by timing like seasonal fluctuations. The company’s changing cash flows can raise liquidity risks, making it key to take seasonal adjustments into account during their provisioning cycle.

Further complications can arise with the consolidation and adaptation of data when different departments compile their various profit and loss statements from different time periods. The working capital of a company would be inaccurate and attempting to analyse liquidity risk at that level will be affected as well. Deciding on the right partners, especially banks to assist the movement of cash, can expedite the success of liquidity management. 


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