Mastering Liquidity Optimization: The Fastest Route to Financial Control

Imagine a CFO sitting at their desk, eyes on the screen, numbers flashing. They don’t care about profitability right now. They’re checking whether they can cover payroll next week. This is the moment where solvency meets reality, and that’s why liquidity optimization matters.

In corporate finance, there’s a silent killer: being profitable on paper but cash-starved in practice. Liquidity helps companies stays afloat but it also serves as the engine that funds innovation for organic growth and powers acquisitions. A strong liquidity shows to investors that You’re in control.

So how do top-performing companies approach liquidity? They manage it, proactively plan around it and optimize it.

From Cash Balance to Strategic Weapon

What if I told you your liquidity strategy could boost your equity valuation? Or fund your next acquisition without external financing?

KPMG's recent guidance breaks liquidity maturity into four stages: Reactive, Tactical, Operational, and Strategic.

• Reactive firms scramble to find cash every week. Their forecasts are shallow, siloed, and often wrong.
• Strategic firms, by contrast, treat liquidity as a coordinated, enterprise-wide discipline. They connecting cash flow forecasting to investment timing, working capital levers, and even AI-powered anomaly detection.

The ROI? Better cost of capital, enhanced stakeholder confidence, and agility to move when opportunity knocks.

3 Practical Levers to Unlock Trapped Cash

Learning from SME companies across sectors, here are three proven cash unlocks:

1. Optimize the Cash Conversion Cycle (CCC): Too much cash tied in receivables or inventory? You're bleeding opportunity cost. By tweaking terms of payment, shortening collection lags, and refining reorder points, a company freed up €2M in 90 days. This was just by reducing DSO and DIO.

2. Align Payables with Strategic Partnerships: For vendors who are also customers, companies often fail to negotiate offsetting terms. A simple trade balance analysis led one TMT firm to renegotiate its Days Payable Outstanding, saving six figures without damaging supplier relations. Sometimes the best solutions simply require effective communication and common sense.

3. Centralize Treasury Decisions but Don’t Overdo It: A European mid-cap manufacturer adopted a cash pooling model with daily sweeping. Instead of idle cash scattered across subsidiaries, they now have liquidity on demand. This reduces borrowing needs and improving group-level cash visibility.

Liquidity Metrics That Actually Matter

While many CFOs still chase EBITDA as a cash proxy, modern leaders are bridging EBITDA to free cash flow to get the real picture.

Key metrics worth embedding into your finance dashboard:

• Cash Flow to Total Debt Ratio: Are you generating enough to cover obligations? A drop below 0.2 should raise alarms.
• Cash Conversion Cycle: Aim for fewer than 60 days in working capital-intensive industries.
• Variance in Forecast vs. Actual Cash: Above 10% regularly? You’re not forecasting—you’re guessing.

Conclusion? Strategic Liquidity Isn’t Just for Giants

You don’t need a 10-person treasury team or a seven-figure Treasury Management System to think strategically. What you need is:

• Clear ownership of cash decisions.
• A rolling 13-week cash flow forecast (updated weekly).
• A relentless focus on freeing trapped capital across receivables, payables, and inventory.

Liquidity optimization is about applying a focused strategy and committing to it. When done well, it generates its own returns, creates clarity, and gives you full control over cash decisions.

Let’s talk. If your business is ready to stop reacting and start optimizing, I can help design the liquidity model that fits your goals and your cash reality.

 Matteo Aurelio Arellano, Founder of Foresight Fintelligence.