Cash Flow and Liquidity Risk: A Rising Challenge

Why Cash Flow and Liquidity Risk is a Top Risk

Macroeconomic volatility, trade disruptions and increasing competition have made cash flow and liquidity a top 10 risk in our Global Risk Management Survey for the first time since 2019.

Poor cash flow leads to serious problems, disrupting or even halting operations and growth opportunities. The effects from cash flow crises extend well beyond the balance sheet. Companies with insufficient liquidity may struggle to hire top talent, expand their operations or invest in technology — even if their overall financial performance appears strong. Businesses may also be pushed into high-interest loans or overdrafts, which creates further volatility and vulnerability.

Today’s economic environment is turning up the heat on cash flow risk. Inflation remained above central bank targets, and interest rates and foreign exchange rates fluctuated in 2025, making cash flow forecasting and liquidity management substantially more challenging. These dynamics have introduced additional complexity to cash flow forecasting and liquidity management, requiring organizations to adopt more adaptive and regionally tailored strategies.

How to Manage Cash Flow and Liquidity Risk

Organizations can strengthen their cash flow and liquidity risk management by focusing on a series of strategies. These best practices aim to support organizations to withstand volatility, seize opportunities, maintain sustainable growth and even thrive in a turbulent environment, while ensuring alignment with applicable regulatory frameworks and internal governance policies.

Embrace New Technology, Automation and System Integration
Investing in digital tools—such as upgraded accounting and credit management software—enables real-time cash flow monitoring, reduces manual errors, and streamlines billing, payments, and reconciliation. Automation also enhances fraud detection and decision-making. These technologies should be implemented in line with applicable data protection and cybersecurity regulations. The resulting efficiencies can free up teams to focus on strategic initiatives and risk management.

Focus on Timely and Accurate Cash Forecasting
Forecasting remains the cornerstone of effective cash flow management. By using credit insurance to mitigate potential losses and leveraging advanced analytics and historical data, businesses can better predict future inflows and outflows. This includes factoring in seasonal patterns, economic trends, and industry-specific risks. Forecasts should be reviewed regularly to ensure alignment with internal financial controls and external reporting requirements.

Add Agility, Fraud Prevention and Innovation to Your Working Capital
Maintaining open account payment terms and optimizing the cash conversion cycle can help build financial resilience. Companies should also focus on risk prevention through trade credit insurance and accelerate cash conversion via supply chain finance. These strategies can strengthen relationships with customers and vendors, improve liquidity management, and support innovation. Ultimately, they help businesses stay ahead of industry developments and enhance stakeholder confidence.

Adapt and Diversify
To strengthen financial stability, leaders should diversify investments, maintain flexible capital structures, and reassess strategies in light of political and regulatory risks. Exploring new revenue streams and alternative funding options—such as intercompany loans or asset-based financing like receivables finance—can also help improve liquidity and support long-term resilience.

Optimize Inventory Management and Cash Reserves
Excess inventory can constrain working capital. To align stock levels with demand, organizations should conduct regular audits, analyze sales trends, and use specialist software. Collaborating closely with suppliers can help reduce carrying costs, minimize the need for collateral such as cash or bank guarantees, and free up funds for other priorities. Access to lines of credit or flexible financing options—including surety—can further strengthen liquidity management.

Engage in Regular Financial Reviews and Scenario Planning
Frequent financial and performance reviews can help identify issues early. Scenario planning enables businesses to prepare for various market conditions, allowing them to adapt quickly to changing circumstances.

Why it Matters

By ensuring your business adopts best practices when it comes to managing cash flow and liquidity, it will be better able to withstand volatility, seize opportunities, maintain sustainable growth and even thrive in a turbulent environment.

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