Liquidity management - the modern pentathlon

The fundamental ability to meet known and expected payment obligations is an obligation that every company must meet. At the same time, the provision of liquidity is not free of charge, so that the immediate cash balance should be kept as low as possible. Fulfilling this task is a five-fold battle.

The first discipline is the management and assessment of operational payments. Operational planning and forecasting are of particular importance here. In addition, the secret star is the operational excellence of the accounting system, because without a current accounting system with a meaningful open item accounting, every assessment becomes a torture. The freestyle is a perfect ordering system.

The second discipline is the management of the structures of the business model - the quality of which is reflected above all in the working capital. Just to name a few examples: Here we recognize the payment targets from sales and purchasing as well as the quality of warehouse management or the design of the production chain. Even the speed of invoicing can be seen.

The third discipline is the optimization of long-term financing, which determines on the one hand the callable liquidity and its call flexibility and on the other hand the financial burden of financing.

The twin of financing, the investment strategy, is the fourth discipline.

Last but not least, the fifth discipline is the hedging and assessment of financial risks, e.g. exchange rate fluctuations from the operating business.

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Paying attention will be noticed - the tool does not play the first violin!

Liquidity management - no task for lone warriors!

Liquidity management is never the job of a single person - neither controllers nor treasurers can do it! They can at most be the bearer of bad news. If one should accept a part of the above disciplines as given and equate the responsibility for the liquidity with the provision of a financing, then one can give this to the Treasurer in the responsibility - cost-optimal the solution will not fail however!

Let's take a par force ride through the instruments and levers.

If essential performance indicators, e.g. average payment terms, range of inventories, quality of order fulfillment, etc. are not managed, liquidity will seep into the "system" again and again. Here, all those responsible in the company have a duty and must learn to think in context. Here, the controller can provide support by means of appropriate reporting and the design of the management model. The foundation of liquidity management is operational short-term and long-term planning. For example, without a reliable sales forecast, every liquidity forecast always resembles bone throwing, coffee grounds or glass ball reading. For this reason, integrated corporate planning plays a decisive role, ideally even driver-based. In some industries, predictive analytics approaches can also provide significant support.

The importance of operational excellence in accounting is obvious. Without an up-to-date accounting system, the liquidity manager leafs through account statements, incoming and outgoing invoices every day and makes a pilgrimage to the personnel and tax departments as well as purchasing. Apropos purchasing. An orderly ordering system and the central receipt of incoming invoices protects against surprises!

People like to call for IT support. Yes, but not in order to clean up the bad data at the end of the chain and achieve an interpretable result, but to provide the data consistently at the source. The leverage in the ERP strategy is much greater than in the acquisition of liquidity management software. Even the introduction of cash pooling is not just a question of tools. Every logistician knows: more stock - higher stock levels. Why should it be any different with bank warehouses? Nevertheless, bank accounts are diligently opened and freely communicated on letterheads. Rarely is this a well thought-out strategy. If the institution's borders then prevent cash pooling by the institution itself, then only the internal tool remains. Reducing complexity is also very helpful here. You can do this even if you diversify your bank relationships in order to reduce the creditworthiness risks of the institutions.

Liquidity management - the big number puzzle

The classic is a meeting at CFO's. The head of accounting presents the cash flow statement and the short-term need for liquidity from the accounting department. The controller counteracts this with his financial planning. Finally, the treasurer presents his forecast from the liquidity management tool, which creates a forecast based on the evaluation of the bank accounts. Confidence in the figures increases immediately! A uniform concept and a clear allocation of responsibilities are required here. Clean up the myth of a direct cash flow - this is double-entry accounting in the worst sense - and let each of the three colleagues contribute their special knowledge to the solution!

Here, too, the concept of integrated planning is an important component of the solution.