Practical liquidity management for treasurers

Published: 25 April 2024

For corporate treasurers, liquidity most importantly means cash and access to cash. For example, Thames Water announced in March 2024 that its liquidity was £2.4 billion. This crucial total is made up of the company’s cash plus its available committed facilities. Learn from industry experts as they share their knowledge of liquidity and why practical liquidity management is important for businesses.

Why liquidity matters so much

Thames Water announced that its £2.4 billion of liquidity was sufficient to enable it to continue operating for more than a year ahead, well into 2025. 

This was despite the business failing to secure the substantial new equity funding previously anticipated for the first quarter of 2024. With enough liquidity, our organisation can carry on. Without enough liquidity, we can’t.

Keep your career flowing freely

A deep, broad, commercial and practical understanding of liquidity management is an essential lifeline, both for organisations and career progression. To support your career development, we asked leading treasurers what they know about liquidity now, that they’d have benefited from learning sooner.

Dr Robert McCarthy (Deputy Treasurer, Metro Bank) summarises, “The key insight for anyone in treasury is that liquidity impacts, or is impacted by, everything a firm does.”

What to learn about liquidity

What I wish someone had told me sooner in my career is it's a crucial role for corporate treasurers. Liquidity, facilitated by money market instruments, funds and bank deposits, is essential for managing risks and executing corporate strategy effectively. 

Liquidity ensures prompt access to funds for meeting financial obligations and seizing strategic opportunities, promoting financial agility and supporting longer-term success.

(Djan Salih, Senior Associate, Liquidity Distribution Corporates, Morgan Stanley)

Get it before you need it

The point at which you really need liquidity is precisely the point at which you will not be able to source it affordably. Liquidity management is therefore a future-focused, precautionary activity.

(Patricia White, Treasury risk training consultant)

You only miss it when it's gone, so get it before you need it. Having liquidity means you can get on with your day job. Lose it and you are locked in a hellish hand-to-mouth doom loop.

(Ian Kirkpatrick FCT, Head of Group Treasury, 888holdings)

Bank facilities must be (1) Secure, (2) Committed and (3) Available

It is important for all treasurers to Know Your Bank (KYB). Banks’ capital adequacy should not be confused with their liquidity, as capital alone does not secure the bank when confidence drains. 

Even committed liquidity lines provided by banks should be evaluated, and the language in loan documents examined, to ensure availability.

(Amit Mehta AMCT, Corporate Finance & Treasury specialist)

Position for opportunities

A lot of us have heard over the years that "cash/liquidity is king". During my treasury journey this statement has proven to be one rule that always held true. 

A strong liquidity structure is not only important to run the business in a steady state, but also deal with disruptive events and capitalise on growth opportunities as they arise.

(Varun Wadhwa DipTM, Deputy Treasurer, Baker Hughes)

Know your time buckets

It's critical to understand your liquidity time buckets. This is liquidity that is accessible to your organisation segmented into same day terms, T+2 day terms, in one month, and so on into the future. The time granularity you need may vary in different circumstances.

(Jonathan Cohen FCT)

As we know from recent times, liquidity shocks can happen at any time – and for many different reasons. For this reason adequate liquidity is essential for organisations to be able to fund themselves over the period until economic activity improves.

(Tim Coope FCT, Head of Treasury, Interim, St James’s Place)

Dynamic dance for success and financial health

Liquidity matters. It’s the bloodstream of business, keep it circulating for the organisation’s vitality! Liquidity isn't merely about cash on hand: it's about orchestrating the perfect cash dance for success.

(Kemi Bolarin FCT, Head of Treasury - Europe, GXO Logistics Inc)

I agree with Kemi that liquidity is the life blood of every organisation. To guarantee the financial health of any organisation, effective liquidity management is vital at all times.

(Bright Michelo CertTF, Liquidity Accountant, ZSIC General Insurance)

The true value of a treasurer

One thing I learnt very early on in my career is that liquidity never stays still, and is always moving around depending on what the business is doing. Being reactive is not the answer (though we all need reports and visibility to show the current position).

As treasurers we need to always ask the “what if” question for the future. Everything the business does has an ultimate cash impact, and I have been surprised at some of the major decisions made by companies without understanding the true impact on liquidity. Therein lies the true value of a treasurer.

(Julie Fabris FCT, Group Treasurer, Wonder)

Practise daily to build financial strength

Liquidity management for a corporate treasury is equivalent to waking up every morning to exercise. Like too many individuals who are lazy, too many corporate treasuries keep idle cash in bank accounts as they consider they don't have time to plan when the cash will actually be needed. 

Just like a sound personal morning routine promotes long term physical health, proactive corporate liquidity management builds additional financial strength which becomes extremely valuable in times of stress.

(Rahul Daswani FCT, Digital Transformation)

Leverage networks and tech

It is imperative for treasurers to leverage our technology, bank contacts and robust networks to stay ahead of the curve in managing the organisation’s liquidity. Then we can proactively grasp opportunities and manage risks, on a real-time basis.

(Andre Khor FCT, Chief Financial Officer, Chandra Asri Group)

The SLY principle

When it comes to investing surplus funds, there is one principle I hold very dear: the SLY principle. Security first, liquidity second and the last consideration should be return. This certainly helps in board room discussions.

(Raj Gandhi FCT, former CFO and Group Treasurer)

3 liquidity tips for all treasurers

The treasurer can make an important contribution to protecting and enhancing the value of their organisation if they:

(1) Ensure a 13-week rolling cash flow forecast is produced and updated weekly;

(2) Communicate effectively the outlook and implications of the forecast to stakeholders; and

(3) Are vigilant to the working capital implications as any economic recovery progresses.

(David Tilston FCT, Senior Independent Director)

Treasury’s leadership, knowledge & confidence

In a liquidity squeeze, the business will inevitably look to treasury for leadership. The treasury team should already have efficient operations, strong and clear policies, and deep knowledge of the business, if they are to meet the additional demands that will be placed upon them.

Knowledge is power. A daily net debt report can inform what cash is available, where it is being held internationally, and how quickly it can be moved to where it needs to be in an emergency. Finally, even if you are panicking on the inside, it’s important you don’t show it.

(Joe Scattergood FCT, Treasury specialist)

Policy, positioning and practicalities

In my view, the role of treasury is firstly to identify and measure the liquidity risk of their organisation. Then to articulate it in a practical and comprehensive manner to the key stakeholders including the CFO, Treasury Committee, Finance Committee, the Board and others, so that they can efficiently define the risk appetite through practical parameters and KPIs that can be fully documented in a treasury policy.

In assessing liquidity risk, it is important not to passively accept the current liquidity position, but to think commercially, creatively, and practically on how to improve it. 

(Dino Nicolaides FCT, Head of Treasury Advisory, Redbridge Debt & Treasury)

Working capital initiatives

Questions for treasurers to ask include whether there are ways to reduce liquidity tied up in working capital. For example by:

•    Reducing debtor days by providing incentives to be paid earlier? 

•    Increasing creditor days? 

•    Reducing levels of any slow-moving inventories?

•    Selling old or slow-moving inventories faster, perhaps by applying appropriate discounts?


Act locally, think system-wide

My team is responsible for effectively deploying London Stock Exchange Group (LSEG)’s clearing members' cash collateral in several ways, including secured financing as a cash lender (reverse repo), outright purchase of securities, placement with central banks, and overnight unsecured deposits, whilst also ensuring the necessary liquidity to address both expected and unexpected cash flows.

Liquidity is not only vital for every individual organisation – and I can’t stress that enough – it is also an essential ingredient in the effective functioning of the entire financial system.

(Awah Tumban ACCA, Collateral & Liquidity Management Post Trade, LSEG)

3 key risks

Early on in my treasury career I learnt there are three key risks - liquidity, liquidity, and liquidity! This is equally true today (following the 2022 gilt crisis) as it was in 2007/8 (global financial crisis) and in 1998 (Russian default crisis). 

In my 30-year career to date, these have been my top three considerations before anything else!

(Phil Aspin FCT, FTSE100 CFO and former Group Treasurer)


Author: Doug Williamson, FCT


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