To be sure, the recent FTX crisis in the crypto industry has put the word “liquidity” on everyone’s lips as traders withdraw their bitcoin from exchanges, trading platforms declare bankruptcy, and fears grow that more crypto-focused enterprises may follow suit.
However, liquidity is a worldwide problem. Liquidity may be thought of as the “oil” that keeps corporate engines running. Cash, short-term assets (and the ability to convert them to cash), and loans are critical in assisting businesses in meeting their short-term obligations.
There are a number of reasons why executives, particularly treasurers, are more concerned than ever before with maintaining sound balance sheets and cash flow. Inflation has reached unprecedented levels in decades. Capital is more expensive, and accessing traditional financing channels, such as bank loans, is more difficult than it was previously.
According to a recent research paper published by the New York Federal Reserve, “banks act as if their intraday reserve balances are a scarce resource, even though total reserve balances in the US banking system are well over $1 trillion.” The reserves may exist, but caution is a significant byproduct of today’s macroeconomic uncertainty.
Enlisting suppliers — including large banks and independent providers — may, at a high level, automate the back-end operations that traditionally fill the workday while improving cash flow visibility. Data and analytics, which give a comprehensive view of a company’s real-time financial health, contribute to the improvements.
