Get the Cash Flowing
Cash and liquidity management are core elements of a successful treasury management operation and fundamental to maintaining a strong balance sheet. Look at it as a cost of doing business, not unlike insurance. Appropriate liquidity management should ensure that you have enough cash available to meet all payment needs—expected or unexpected. It involves forecasting, risk management, bank relationships, transparency and communication. Cash must be in the right place at the right time.
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An optimal liquidity management framework should address your actual and potential cash needs; safety, diversification and accessibility of cash and short-term investments; and alternative and contingent funding sources.
Five Key Liquidity Principles
Following these five key principles can help you manage your company’s liquidity more effectively:
- Understand and categorize your cash needs, then determine your appropriate (not necessarily minimum) liquidity requirement.
- Establish appropriate investment guidelines focusing on availability and safety.
- Select investment types within guidelines that are appropriate for each cash category.
- Establish and verify diversified contingent funding sources.
- Maximize the transparency and efficiency of your cash position across geographies and legal entities.
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