Liquidity Planning – Anticipation is Key

By Kyriba

“Liquidity Planning is what allows companies to assess and test their short, medium and long term liquidity, according to different assumptions” recalls Xavier Audibert, VP Product Architecture / Product Management, Kyriba. It is a key reporting which comes from the transformation of the budget into cash, starting from the assumptions made by the business. Anticipation enables cash optimisation, financing and investment preparation in terms of timing, sizing, identification of counterparties and currency risk hedging.

In order to measure and forecast liquidity, the ideal is to have a continuous analysis horizon, i.e. visibility over the coming year, or even several years, generally on a weekly or monthly basis. “This exercise requires quality forecasts based on reliable data that is not duplicated, combining different sources (balance sheet, budget, statements of accounts, etc.) and then varying the assumptions according to the parameters. One of the major difficulties is forecasting customer receipts, as the due dates defined in trade receivables are theoretical (customers often pay later…) “analyses Xavier Audibert.

Today, this information is achieved through “day before” and “intraday” account statements, with aggregate forecasts imported from ERPs, or the import of individual AP / AR invoices, or even purchase orders. If treasurers want to extend the range of their forecast and provide information, they need to look at those treasury budgets derived from Accounting budgets and in-currency commercial transactions in order to mitigate exchange risks. For even more accurate information, investment schedule, available credit and overdraft lines should be taken into account as well as the “Cash Equivalent” – all of which are necessary metrics for planning liquidity. This is a challenge that traditional tools like Excel cannot meet.

To learn more, watch this video with Xavier Audibert.