Best liquidity management strategies for multinational enterprises

ABC Manufacturing, a globally operating mid-sized company, experienced a sudden spike in orders due to a new product launch. While this was a great development from a revenue perspective, they were facing an immediate challenge in its aftermath—cash flow. To meet the demand, the company needed to purchase raw materials in bulk, but payment from customers would not come in the next 60 days.

Just like that, ABC Manufacturing found itself struggling to cover its upfront costs. They risked delaying production, losing customers, and damaging their reputation. This is just one scenario where a liquidity management strategy can help.

Let’s discuss how liquidity management can help you figure out your options when facing fluctuating cash flows, unexpected expenses, or an emerging need for short-term financing. 

“Sustainable liquidity management isn’t about reacting to daily cash needs—it’s about long-term planning. Companies need to build resilience into their liquidity strategies to navigate economic downturns and market volatility.” - Jouni Kirjola, Head of Solutions & Presales

Meet the experts 

I had the chance to converse with Nomentia's experts, Jouni Kirjola and Karl-Henrik Sundberg, about the challenges and opportunities of liquidity management in today’s business climate.  

Jouni Kirjola

Jouni Kirjola is the Head of Solutions and Presales at Nomentia, bringing nearly 20 years of expertise to the role. Specializing in payments, cash forecasting, in-house banking, and reconciliation, his extensive experience and deep knowledge of financial solutions make him a key expert in delivering tailored solutions.

Karl-Henrik Sundberg

Karl-Henrik Sundberg is a Senior Product Manager for Cash Forecasting at Nomentia, with nearly a decade of experience at the company. He brings valuable expertise from his prior roles as Director of Group Cash Management and Back Office in a Corporate Treasury, as well as in cash management software. 

What is liquidity management? 

Before we start, we need a definition. So, what is liquidity management? With liquidity, we generally meant the either the extent a business is able to meet their cash obligations the amount of liquid assets available to do that, but also how easily an asset can be converted to cash. For the purposes of this article, we’re mostly relying on the former.  

Liquidity management aims to strategically plan and control the company’s liquid assets in order to stay solvent and maximize returns: You have bills to pay, employees need wages, suppliers need to be paid and debtors must have their money too. But you also have to able to make use of opportunities to grow and profit. 

“On paper, liquidity management can seem straightforward—track cash, forecast, and optimize. But in practice, especially for multinational companies, it’s incredibly complex. You need the right expertise and tools to get it right.” - Karl-Henrik Sundberg, Product Manager, Cash Forecasting 

Liquidity management asks questions like “are we managing our receivables, payables, and inventory efficiently to optimize working capital and maximize cash flow?” And “how do our liquidity ratios and cash flow management practices impact our ability to secure loans or attract investors?” 

Liquidity management is about weighing options for obtaining quick financing or emergency funding in case of unexpected cash flow issues, or what’s the best way to invest surplus cash to generate returns without compromising liquidity. Liquidity management attempts to foresee what potential events could disrupt the company’s cash flow what can be done to avoid or lessen the consequences of those risks. 

Liquidity management is closely linked to cash management, but where liquidity management focuses on the overall ability of the company to always meet its financial obligations, cash management concentrates more on the day-to-day handling of cash flow.  

Knowing what’s the best choice at any given time is never easy. For a small company with limited operational scope and perhaps just a few bank accounts, managing liquidity is comparatively straightforward process, but to support more complex operations, liquidity management calls for continuous monitoring, optimizing liquid asset availability, but also for projecting cash inflows and outflows over the next week, month, or quarter. 

Global liquidity management: who’s in charge? 

Cash is king, but who’s running the show? For just about half a decade now, global surveys have shown liquidity management topping the lists of treasury mandates and key priorities. On the day-to-day level, this can, of course, manifest in several ways. For example, for retail industry operators, inventory turnover and seasonality are key factors in liquidity management, while liquidity management in manufacturing tends to emphasize managing supply chain complexities and long production cycles, whereas liquidity management for a business operating in the service industry highlights the importance of managing accounts receivable and client payments. 

Challenges of liquidity management 

Industry-specific liquidity management priorities might vary, but the challenges of liquidity management are largely universal in the global economy: 

1. Cash flow visibility is a critical liquidity management challenge: Let’s take a multinational SME with subsidiaries across Europe and Asia that’s struggling with real visibility of cash positions. Without an accurate, up-to-date view of available cash across their regions, the company unnecessarily seeks external funding, unaware of internal resources that could be reallocated. Over time, this leads to inefficient cash utilization, higher borrowing costs, and missed opportunities to optimize liquidity. If unresolved, the compound effects reduce not only treasury performance but also overall business profitability and agility.

2. Liquidity management requires cash forecast accuracy: If a company’s global operations rely on cash forecasts that are based on incomplete or inaccurate cash flow data it leads to funds being locked in the wrong accounts at critical times. This quickly leads to faces liquidity shortages, despite the company having enough cash overall. Misallocation of funds drives emergency borrowing or delayed payments and weakens vendor relationships. Over time, poor cash forecasting affects the company’s ability to invest and grow.

3. Currency fluctuations make liquidity management complicated: If a company operates in multiple countries with different currencies, it’s likely to face significant exchange rate risks due to currency volatility. For instance, holding cash in a depreciating currency erodes its value, complicates financial planning, and reduces overall liquidity. If not managed properly, this volatility impacts profitability and disrupts long-term planning.

4. Banking relationships affect liquidity management: Managing multiple banking relationships and accounts across different countries becomes a significant administrative burden for the treasury team. High banking fees, difficulty in consolidating cash balances, and time-consuming manual processes result in fragmented cash management. These inefficiencies increase costs and delay access to liquidity, compounding the challenges of financial management, leading to suboptimal treasury and business performance.

5. Cash positioning inefficiencies strain liquidity management: Decentralized operations and fragmented cash management processes are a common root cause of inefficient cash positioning. Funds are often trapped in regional accounts, and intercompany transactions are poorly coordinated, which prevents the effective pooling of resources. Over time, these inefficiencies lead to liquidity shortages and force the company to tap external funding unnecessarily, which affects the company’s ability to invest and grow.

6. Economic and market volatility challenges liquidity management: Imagine if a globally SME operating faces a sudden economic instability in their key markets: cash flows are disrupted. Market fluctuations cause receivables to be delayed, sales to reduce, and challenges in accessing credit. If the company doesn’t proactively manage liquidity, these economic downturns can snowball into cash flow shortages, and jeopardize its overall business resilience.

7. Poor working capital management: When a business is struggling to balance receivables, payables, and inventory levels it creates a liquidity strain. Excess inventory ties up cash, while delayed receivables and early payments to suppliers further limit available working capital. Over time, poor working capital management impairs the company’s ability to meet short-term obligations, and lead to potential cash shortfalls that affect day-to-day operations and profitability.

8. Intercompany transactions: Liquidity shortages can occur when a company manages intercompany loans and transfers inefficiently, and cash isn’t moved between subsidiaries in a timely manner. The lack of coordination increases financial risks, like forced borrowing at high rates or FX losses due to delayed transfers. Over time, mismanagement of intercompany transactions exposes businesses to higher financial risks. 

“Liquidity management might seem easy in theory—control cash inflows and outflows—but when you add multiple currencies, time zones, and banking systems, it becomes a logistical challenge. This is where the right systems and experienced teams come in.” - Jouni Kirjola, Head of Solutions & Presales

Common liquidity management strategies 

Effective liquidity management is crucial for businesses of all sizes but is particularly important for companies operating in multiple regions with diverse financial systems. Multinational enterprises face complex challenges in managing their liquidity that stem from currency fluctuations, fragmented cash management, and varied working capital requirements. A robust liquidity management strategy can help businesses maintain optimal cash flow, meet their financial obligations, and seize growth opportunities. 

• Centralized cash visibility: One of the most critical aspects of liquidity management is having real-time visibility into cash flow across the organization. Many companies, especially those with decentralized structures, struggle to get a clear view of their cash positions. When cash visibility is lacking, businesses may not fully utilize available liquidity. Centralizing cash flow visibility can help solve this problem. By integrating all bank accounts and financial data into a unified platform,  the business can have an accurate, real-time overview of the company's liquidity position and make informed decisions about cash utilization, debt reduction, and investment.
• Cash flow forecasting: Cash flow forecasting plays an equally important role in liquidity management. Accurate cash forecasts allow businesses to anticipate future liquidity needs and allocate resources efficiently. Predictive analytics can improve forecasting accuracy by analyzing historical data and identifying patterns in cash inflows and outflows. Poor forecasting can lead to liquidity crises and force companies to seek out emergency funding or delay critical investments. Precise cash flow forecasts enable better capital allocation, help build liquidity buffers, and mitigate risks of liquidity shortfalls.
• Liquidity management: Centralization vs. decentralization: Whether to centralize or decentralize liquidity management is a strategic decision. A centralized approach, like using an in-house bank, consolidates cash management across the organization and offers better control and transparency, providing more consistent oversight of the company’s liquidity.  Conversely, a decentralized approach gives subsidiaries more autonomy over their cash flows. While this can be advantageous for regional flexibility, it often leads to fragmented cash management and missed opportunities to optimize liquidity across the business.  

“Automation is key. By integrating cash flow data from banks and ERP systems, companies can eliminate manual errors, improve accuracy, and focus more on strategic decision-making rather than administrative tasks.” - Karl-Henrik Sundberg, Product Manager, Cash Forecasting 

• Controlling working capital across borders: Managing working capital is especially challenging for multinational enterprises, as differing regulations, payment terms, and business practices across borders can complicate liquidity management. Controlling working capital—receivables, payables, and inventory—is essential for maintaining liquidity. Effective working capital management ensures that a company has enough cash to meet short-term obligations while minimizing excess liquidity tied up in inventory or receivables.
• Maintaining cash reserves and liquidity buffers: One key liquidity management strategy is maintaining adequate cash reserves and liquidity buffers to weather unforeseen challenges. Businesses should aim to keep enough cash on hand to cover several months of operating expenses, especially in uncertain market conditions. Maintaining these reserves reduces the risk of liquidity shortfalls and positions the company to invest in growth opportunities without resorting to costly borrowing.
• Cash pooling techniques for better liquidity management: Cash pooling is another effective liquidity management tool. In a cash pooling structure, a company consolidates cash from multiple subsidiaries into a central account. This centralization allows surplus funds from one subsidiary to be used to cover deficits in another. There are two types of cash pooling: physical pooling, where actual transfers occur between accounts and notional pooling, where balances are aggregated for interest calculation purposes without moving the funds.
• FX risk management and currency exposure: Managing FX risk is critical for companies with cross-border operations. Currency fluctuations can significantly impact cash flow and profitability. An SME with revenue streams in both euros and U.S. dollars may face exchange rate losses if it doesn’t hedge its exposure to currency volatility. FX hedging strategies can help companies protect themselves from unfavorable exchange rate movements and stabilize their cash flow.
• Scenario planning and stress testing liquidity: Scenario planning and stress testing are essential components of modern liquidity management. These strategies allow businesses to simulate different market conditions, assess their impact on liquidity, and develop contingency plans. For example, a company might model scenarios where interest rates rise, or a key market experiences a recession, allowing the treasury team to prepare for worst-case scenarios. Comparing cash flow forecasts to actual outcomes also enables continuous improvement in liquidity planning, ensuring that businesses remain agile and responsive to changes in the market. 

“Accurate cash flow forecasting is the foundation of any robust liquidity management strategy. It’s about turning data into actionable insights that allow companies to plan ahead, especially in unpredictable markets.” - Karl-Henrik Sundberg, Product Manager, Cash Forecasting 

Preparing for liquidity crises: Strategies and contingency planning 

Liquidity crises can strike businesses unexpectedly. Preparing for these crises is a crucial aspect of liquidity management.  

Identifying warning signs

Recognizing the early signs of a liquidity crisis is vital for businesses to take preemptive action and avoid financial instability. 

• Deteriorating cash flow: Persistent negative cash flow or a rapid depletion of cash reserves signals that the business is struggling to generate enough income to cover its expenses. 
• Delayed receivables: An increasing number of overdue receivables or long payment cycles can indicate that cash inflows are not materializing as expected, potentially leading to a liquidity crunch. 
• Rising short-term debt: Over-reliance on short-term borrowing to cover operating costs is a red flag that the company’s internal liquidity is insufficient. 
• Missed financial projections: Consistently missing cash flow forecasts may point to inadequate liquidity management and potential liquidity issues down the line. 
• Supplier payment delays: If a company begins delaying payments to suppliers, it may be a sign that liquidity is tight and immediate action is needed.

Building a contingency plan

A well-crafted contingency plan is essential for navigating a liquidity crisis.  

1. Assess liquidity needs: Determine the minimum cash requirements necessary to keep operations running during a crisis. Include fixed costs, payroll, and critical supplier payments. 
2. Build liquidity buffers: Establish a reserve of cash or highly liquid assets that can be tapped during periods of financial distress.  
3. Set up short-term credit lines: Establish relationships with financial institutions to secure pre-approved credit lines or revolving loans. Having these facilities in place allows for quick access to funds if liquidity issues arise. 
4. Diversify funding sources: Avoid over-reliance on a single source of capital. Diversify funding sources, including equity financing, long-term debt, and consider alternative financing options. 
5. Scenario planning and stress testing: Regularly simulate different crisis scenarios (supply chain disruptions, market downturns, or currency fluctuations) to gauge how liquidity might be affected.  

Accessing emergency financing

In the event of a liquidity shortfall, accessing emergency financing can be the difference between maintaining operations and spiraling into a cash crisis. 

• Revolving credit lines: Pre-established lines of credit can provide immediate access to funds in times of need, with flexible terms that allow for quick repayments once liquidity improves.
• Factoring receivables: By selling outstanding invoices to a factoring company, businesses can quickly turn receivables into cash. This option helps unlock liquidity tied up in unpaid invoices.
• Short-term loans: Businesses can also turn to short-term loans from banks or alternative lenders. These loans typically have higher interest rates, but they offer rapid access to capital.
• Asset-based financing: Companies can leverage their assets—such as inventory, equipment, or real estate—as collateral for loans, securing quick liquidity.
• Government support programs: In times of economic downturn, businesses may qualify for emergency loans, grants, or guarantees from government support programs aimed at stabilizing the economy. 

Communication and crisis management: Effective communication is a critical component of managing a liquidity crisis. Both internal and external stakeholders need to be kept informed about the company’s situation and the steps being taken to address the problem. 

• Internal communication: Clear and transparent communication with employees is essential to maintain morale and ensure that teams are aligned on the company’s strategy. Leadership should inform staff of any operational changes, cost-cutting measures, or efforts to secure financing. It is equally important to communicate regularly with the treasury and finance teams to track cash positions and liquidity risks in real-time.
• External communication: Externally, maintaining open lines of communication with key stakeholders—creditors, investors, and suppliers—is critical for maintaining trust and avoiding panic. Investors will want assurance that the company has a plan to weather the crisis, while creditors may be open to renegotiating terms if they are kept informed of the situation. 

The impact of liquidity management on overall financial health

Liquidity management is a cornerstone of financial health for any organization. Whether a small business or a multinational enterprise, effectively managing cash flows and liquidity is crucial for operational continuity, growth, and resilience in fluctuating markets.  

“On paper, liquidity management can seem straightforward—track cash, forecast, and optimize. But in practice, especially for multinational companies, it’s incredibly complex. You need the right expertise and tools to get it right.” - Karl-Henrik Sundberg, Product Manager, Cash Forecasting 

Effective liquidity management directly contributes to an organization's overall financial stability. Without sufficient liquidity, businesses face the risk of cash shortfalls, which can lead to operational disruptions, missed opportunities, and, in extreme cases, even insolvency. 

Central to this is accurate cash flow forecasting and visibility, which provide a real-time understanding of the company’s liquidity position. When treasury teams have clear insights into available cash and expected inflows and outflows, they can make the best decisions about spending, investments, and debt management.  

Investors closely monitor a company’s liquidity position as an indicator of financial health and risk management. Strong liquidity management signals that the business has the resources to meet its obligations, reinvest in operations, and withstand market volatility. In contrast, poor liquidity management raises red flags for investors, who may perceive the company as vulnerable to cash flow problems or over-reliant on debt financing. Through effective liquidity management practices like cash pooling, accurate forecasting, and FX risk management— a business can show investors that it is well-positioned to handle economic downturns or sudden changes in demand.  

“Cash pooling helps companies unlock trapped cash, especially in multinational operations. It’s a crucial technique for optimizing liquidity without having to rely on external borrowing.” - Jouni Kirjola, Head of Solutions & Presales

Companies that maintain healthy liquidity positions often enjoy better credit ratings, which in turn leads to lower borrowing costs and a more favorable financial standing in the eyes of creditors and stakeholders. 

Liquidity management is not just about meeting short-term financial needs; it also plays a vital role in long-term financial planning and sustainability. Companies with strong liquidity management practices can allocate resources more effectively. 

For example, businesses that maintain liquidity buffers are better equipped to invest in research and development or expand into new markets without jeopardizing their core operations. 

Incorporating liquidity management into broader financial planning also enhances a company’s resilience to external shocks. Scenario planning and stress testing allow treasury teams to model various economic conditions and prepare the company for potential disruptions. Being prepared helps ensure that liquidity remains stable and that the company can execute its long-term strategy regardless of market volatility. 

"The reality is that managing global liquidity without dedicated software is a recipe for inefficiency. Proper systems give companies the control and accuracy they need to manage their cash, no matter how complex their operations are." - Jouni Kirjola, Head of Solutions & Presales