Liquidity Management

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 Liquidity Management
Having funds available to meet all known
and unknown commitments
- In the right currency
- In the right place
- At the right time
Minimise cost of funds and debit interest
Maximise use of surplus funds and interest
earnings

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 Liquidity Management

As always a balance between

the costs and benefits of having liquidity and

the costs and benefits of lacking liquidity

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 Liquidity Management
How may a company improve liquidity?
•External
-Through borrowing
-Through suppliers
•Internal
-Better practices on inventory, receivables short
term investment
-Better control of cash resources around the group

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 Liquidity Management
• Focusing on maximising Internal liquidity
utilising existing but wasted resources

Pooling / Cash Concentration

First: Notional Pooling

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 Liquidity Management
Interest Enhancement
• As mentioned earlier, sometimes rules and
regulations make cash concentration and
cash pooling difficult, uneconomic or illegal
• Nonetheless, Banks have developed ways
to enable companies to gain some benefit
from their balances
• The banks recognise that the balances they
hold, even where blocked, are reflected on
their balance sheet and therefore of value
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 Liquidity Management
Interest Enhancement
• Suppose that the bank will normally charge
interest on deficits at LIBOR plus ½ and pay on
surpluses at LIBID – ½
• To the extent that balances offset each other
the bank will adjust these rates
• E.g.
Account No 1 has a surplus balance of
GBP 100 and account No 2 a deficit of
GBP 50.
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 Liquidity Management
Interest Enhancement
• There is an offset of 50% so
• They would charge interest at, say, Libor
plus1/4
• And pay interest at LIBID – 1/4

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Thank you

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