Liquidity Management Lessons

Tough times tend to bring out the best in people – and organizations. Many corporate finance functions and treasury teams thrived during the uneasy early days of the global pandemic. Some of the liquidity management adjustments finance and treasury leaders made in response to pandemic-related uncertainties are now proving valuable to their organizations in the face of new forms of volatility.

“Many corporates held more liquidity on their balance sheet from drawing down their corporate revolvers to provide certainty regarding liquidity, especially for their boards of directors, during the pandemic,” TreviPay CFO Joel Campbell explains in a new Treasury & Risk article focusing on liquidity management practices. “Fortunately, following the 2008 credit crisis, banks were very supportive of this temporary move and had ample liquidity themselves to ensure corporates could make the draws.”

Strong banking relationships will come in handy as finance and treasury groups respond to increasing interest rates, a possible recession and the implications of rising geopolitical tensions (including Russia’s ongoing war on Ukraine). Campbell and the other experts cited in the Treasury & Risk article identify a number of pandemic-era liquidity management improvements and actions that can be used to address current and future external volatility.

These measures include upgrading traditional liquidity forecasts by infusing them with more forward-looking cashflow drivers, conducting them more frequently and subjecting the forecasts to more rigorous stress testing (i.e.,  more “worst-case” scenarios). Another step consists of expanding the number of short-term funding options – such as repurchase agreements, and Federal Home Loan Bank System (FHLB) advances – treasury groups have at their disposal. Campbell points to the value of getting effective working capital management mechanisms in place before they are needed.

“Corporate revolvers exist for a reason—to draw down in times of market stress or liquidity stress and provide needed operating liquidity,” Campbell tells Treasury & Risk. “Every corporation that does not naturally have excess cash or capital on their balance sheet should have a revolver in place to bridge themselves in times of extreme market stress.”

As the challenges posed by COVID recede, new sources of extreme market stress will create new risks for finance and treasury teams to address. A little preparation can go a long way toward reducing those stress levels.

TreviPay CFO Joel Campbell also weighs in on payments trends in a separate Treasury & Risk article here.