What is liquidity management, and why does it matter?

In uncertain markets, liquidity is not just a safety net, it’s a competitive advantage. As Olof Stålfors, Head of Cash Management & Card Sales LC&I Norway at Nordea, puts it: ”Profit doesn’t always equal cash, and that can be a hard-learned lesson.”

The profit vs. cash dilemma

Consider a scenario where your company secures a major contract with a client, but the payment terms extend to 90 days. While you’ve recorded the income, the actual cash won’t arrive for three months. During this period, you still need to pay salaries, cover interest payments and maintain operations. This can be especially demanding during a growth or expansion phase, which tends to consume capital and restrict liquidity.

“A profitable company may not be a cash-rich company,” explains Stålfors. “But if you have good control over your cash processes, that gives you opportunities that competitors don’t have.”

Why effective liquidity management matters

Effective liquidity management starts with the company’s own processes and is a key differentiator between successful and struggling companies. Companies with strong liquidity management tie up less capital in their operations, enabling faster operational cash flow generation compared to peers. This efficiency creates flexibility for shareholder value creation – whether reinvesting in the business or distributing returns to shareholders.

Disciplined liquidity management protects operational continuity, reduces funding costs and lowers financial risk. It provides insulation from financial distress while giving companies the flexibility to invest surplus cash to stay ahead of competition.

The role of treasury

Chief Financial Officers typically delegate operational responsibility to treasury or finance departments to ensure cash availability meets target levels – often covering one to three working capital cycles. Treasuries must evaluate cash management providers that are capable of providing efficient liquidity management structures and back-stop solutions for unforeseen disruptions.

Evaluating a cash management provider goes beyond a technical assessment. It also includes assessing the provider’s advisory capabilities on collection, payment, invoicing and working capital solutions. 

How Nordea can contribute

Nordea provides best-in-class liquidity solutions with real-time cross-border access to liquidity. For example, a collection in London can be made immediately available in Denmark for a Norwegian company.

Since the inception of the Global Cash Pool service over a decade ago, we have implemented the equivalent of one cross-border, multi-currency Nordic cash pool solution every week. This extensive experience ensures smooth customer implementation, while our cash management advisers work closely with customers to optimise their setups.

As the largest financial services group in the Nordics, Nordea handles a substantial share of the total Nordic collection volumes. We continue to invest heavily in modern collection instruments and leading market initiatives across the region.

Automation is increasingly critical for today’s finance teams. “Our customers’ treasury teams are absolutely dependent on automation,” says Stålfors. “End-of-day processes, reconciliation processes, everything that used to be time-consuming, needs to be automated away so they can focus on the difficult value-adding tasks.”

In recent years, Nordea’s Global Cash Pool and AutoFX solutions have been integrated, combining FX automation with liquidity management in a unique offering to support seamless operations.

And finally, Nordea offers a range of flexible working capital solutions, which can serve to both offload the balance sheet and to strengthen supplier relations.

Looking ahead

As global uncertainties create challenges around trapped cash in various jurisdictions, sophisticated liquidity management becomes increasingly important. Companies that master these capabilities will be better positioned to navigate disruptions, seize opportunities and maintain competitive advantages.