How To Master Cash Flow Management and Liquidity Risk

Understanding cash flow management and liquidity risk are essential to keeping any enterprise functioning at a high level. Here’s what you need to know.

Managing short- and long-term debt while maintaining liquidity is perhaps the most important part of a corporate treasurer’s job. Below are tips to help create a cash and liquidity risk strategy that works for your company.

Adopt the right mindset 

The risk of nonpayment from suppliers, covenants on loans and unstable markets can pose challenges to a business.

It’s essential to understand the difference between cash management and liquidity management in order to manage debt or excess cash to maintain appropriate liquidity positioning. “Cash management is your ‘payment and receivables’ function,” says Jason T. Sweatt, CTP, Senior Vice President and Liquidity and Deposits Manager at Regions Bank.

In contrast, proper liquidity management ensures that a company has enough liquidity from receivables, cash or borrowing capacity to pay bills.

Build your tech toolkit 

“To manage both cash and liquidity risk, you must have good reporting,” Sweatt says. That means knowing the location of your company’s cash, so you can plan to pay your bills. 

For a small business, online banking, accounting tech and cash flow forecasting software can foster good reporting. Bigger companies typically need an enterprise resource planning (ERP) system for accounting. 

These larger enterprises need sophisticated banking tools like real-time money reporting, in addition to using advanced fraud-prevention services. 

Minimize cash and liquidity risk 

Take stock of your cash flow and liquidity frequently, so you can prevent problems. Are there any clients at risk of not paying you? Is there a chance you won’t be able to make payroll or pay an unexpected bill? “It gets back to understanding what the actual risks are in your business,” says Sweatt.

Plan for market fluctuations 

In case of an unexpected crisis, such as a large invoice, make sure you have enough cash on hand to run the business. Avoid market risk altogether on these emergency funds. 

A business line of credit can also be an important source of funds in case of an emergency. “Even large corporations ensure access to liquidity, such as a line of credit,” Sweatt says. “They may not have drawn on that line in years, but they have it just in case.” For any reserves you have invested, put a written investment policy in place, Sweatt says, to help prevent sudden or emotional reactions to changes in market conditions.

Keep learning 

Ask your banker about products that can optimize your credit line use. Some can automatically ensure that you have enough cash in your account on any given day, so you aren’t unnecessarily incurring interest.  


This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions'. Consult an appropriate professional concerning your specific situation and for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.