Liquidity management
Liquidity management

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Liquidity management

Conclusion

This short course explored the vital issue of liquidity risk management. Any organisation’s worst nightmare is to find itself facing a liquidity crisis and begging its bankers when a cash flow crisis has already arisen. Under such circumstances bankers often question the abilities of the company’s management at cash flow management and are reluctant to lend unconditionally further money to the organisation. The management needs to make projections of the organisation’s forward cash flows and maintain funding capacity that is ideally well in excess of this worst case cash flow scenario. Maintaining a prudent maturity profile for funds is also necessary, and if the organisation is large enough, it should seek to fund it from a number of markets rather than just a single market. Flexibility in financing is crucial, so as far as allowed by those lending to the organisation, the latter should seek optionality or flexibility in the terms or conditions of the relevant agreement documentation. While adhering to all the rules above, the management should of course rank the sources of funds available in terms of comparative cost.

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