Strategic Treasury Management and Liquidity Planning

✦ Strategic treasury management ensures the right cash is available in the right place at the right time, balancing operational liquidity with return, risk, and cost objectives.

✦ Liquidity planning aligns short- and medium-term cash needs with funding sources, investment strategy, and risk management policies.

✦ Modern treasury focuses on visibility, forecasting accuracy, centralization, and integration across banking, payments, and working capital platforms.

✦ Strong governance, scenario modeling, and digital tools enable treasurers to optimize capital deployment while maintaining financial resilience.

We’ll explore how treasury teams structure liquidity frameworks, manage risk, forecast cash, and align treasury operations with enterprise strategy.

1. Treasury’s Expanding Role

Historically, treasury focused on cash positioning and short-term borrowing. Today, strategic treasury serves broader goals:

✦ Liquidity and risk management

✦ Capital allocation and funding strategy

✦ Banking and payment infrastructure oversight

✦ Currency and interest rate hedging

✦ Treasury policy and governance compliance

✦ Treasurers now work closely with CFOs on balance sheet structure, financing, M&A readiness, and investment policy.

2. Core Liquidity Planning Framework

✦ Daily cash positioning — ensure sufficient balances to fund operations, payroll, debt service.

✦ Cash flow forecasting — 13-week short-term and 6–12 month rolling forecasts.

✦ Liquidity buffer — establish minimum operating cash plus contingency reserves.

✦ Liquidity coverage ratio (LCR) — measures ability to meet short-term obligations under stress.

✦ Funding plan — defines external and internal sources for routine and peak needs (e.g., revolvers, intercompany lending, commercial paper).

3. Forecasting and Visibility

✦ Short-term forecast (1–13 weeks): supports tactical planning and disbursement scheduling.

✦ Medium-term forecast (1–12 months): supports dividend planning, capital expenditure, refinancing.

✦ Long-term forecast (1–3 years): informs capital structure and strategic investments.

✦ Tools: 

• Treasury management systems (TMS) 

• ERP integration (AP, AR, GL modules) 

• AI-powered cash forecasting 

• Bank APIs for real-time balances and transaction data

✦ Accuracy improves with historical variance tracking and cross-functional collaboration.

4. Liquidity Structure and Cash Mobilization

✦ In-house bank or cash pool: Consolidates global cash across entities to centralize control.

✦ Physical pooling: Sweeps funds to a master account—simple but may trigger withholding or tax exposure.

✦ Notional pooling: Offsets account balances across entities without moving funds—often more tax efficient.

✦ Intercompany lending: Internal funding between subsidiaries, often governed by intercompany loan agreements.

✦ Trapped cash: Local regulations or capital controls may prevent full repatriation—requires local investment or regional liquidity buffers.

5. Liquidity Risk Management

✦ Minimum cash thresholds by entity, region, or currency.

✦ Stress testing for operational disruption, credit-market freeze, or sharp working capital changes.

✦ Contingency funding plan for high-impact scenarios.

✦ Diversified credit facilities: Multiple banks, maturities, currencies, and instruments (e.g., RCFs, overdrafts, CP programs).

✦ Back-up liquidity: Pre-position lines or marketable securities that can be liquidated quickly.

6. Investment and Surplus Cash Strategy

✦ Establish a tiered cash segmentation model: 

• Operational cash 

• Reserve cash 

• Strategic excess

✦ Investment policy based on: 

• Risk tolerance 

• Liquidity horizon 

• Capital preservation vs. yield priorities

✦ Common instruments: 

• Money market funds 

• Treasury bills 

• Time deposits 

• Ultra-short bond funds

✦ Consider counterparty risk limits, duration constraints, and internal ratings guidelines.

7. Performance and Risk Metrics

✦ Cash conversion efficiency = Operating cash flow ÷ EBITDA

✦ Days liquidity on hand = Total available liquidity ÷ average daily outflows

✦ Debt service coverage ratio = Cash flow available for debt service ÷ interest + principal payments

✦ Percentage of idle cash invested = (Invested surplus ÷ total idle cash) × 100 %

✦ Monitor FX exposure, interest rate sensitivity, and compliance with treasury policy KPIs.

8. Governance, Controls, and Policy

✦ Document and enforce a corporate treasury policy: 

• Liquidity management guidelines 

• Investment strategy 

• Counterparty limits 

• FX and interest rate hedging rules

✦ Maintain segregation of duties across cash management, settlements, and confirmations.

✦ Conduct regular audits, reconciliations, and variance analysis.

✦ Board-approved policy sets tone; treasury committee or CFO signs off on key instruments and changes.