A company’s liquidity management structure should be robust and scalable to meet the demands of growing businesses. Part of the success formula for digital native companies is their ability to expand quickly and gain first-mover advantage. Rapid global growth brings challenges as companies establish and manage liquidity structures.
When planning liquidity management structures, companies should consider:
- Regulatory frameworks of each country targeted for growth: Local restrictions can limit capital movements, currency exchange, and other financial transactions, and hinder the efficient movement of funds complicating liquidity management.
- Functional currency: As companies begin to expand and collect in local currencies beyond their home currency, a more nuanced approach to liquidity structures may be required, including cross currency structuring while adhering to additional regulatory requirements.
- Optimal location to centralize cash: This is not always straightforward. For instance, non-USD accounts are not permitted in the US for liquidity management purposes; companies centralizing multiple currencies often choose locations such as UK, the Netherlands and Singapore as liquidity management hubs.
- Compatibility with internal data management systems: Ease of integration with enterprise resource planning or treasury management systems for bank balance and transaction reporting is key for automating reconciliation.
- Cash flow forecasting models: Only by knowing where and when cash will be received and required can companies invest surplus cash and avoid costly overdrafts.
There is no one-size-fits-all approach for liquidity management. Each company should consider their operations, business model and day-to-day needs to set up the right liquidity structure from day one. Choosing the right partner is paramount to reducing long-term burdens on the treasury team, optimizing costs, and facilitating scalable operational growth. Read the report in here.