Companies rarely fail because they lose money in a quarter; they fail because they run out of cash and committed funding at the same time, usually with a covenant breach somewhere in the middle that turns a liquidity shortfall into a default. Corporate liquidity risk is the risk that a company cannot meet its obligations as they fall due at an acceptable cost: payroll on Friday, the supplier run on the 15th, the bond maturity in March, the covenant test at quarter-end. It differs from a bank’s liquidity risk in its sources (working capital, concentration and debt structure rather than deposit runs) and in its tools (forecasts, covenants and committed lines rather than liquid asset buffers), but the arithmetic of survival is the same: sources of cash against uses, day by day, under conditions worse than today’s.
This guide covers the subject for non-financial companies: where the risk comes from; the 13-week direct cash forecast and how to judge whether it can be trusted; the longer indirect forecast; covenant mechanics and headroom; revolving credit facilities and what their terms do under stress; commercial paper and its backstops; supply chain finance and its disclosure; cash pooling and trapped cash; the stress test and contingency funding plan a corporate treasury should run; what rating agencies and external auditors assess; the failures that show the patterns; internal audit’s program; and a worked example from Brightwater Foods, the $180 million food manufacturer used in examples across this site. The liquidity risk guide covers the bank version and the liquidity stress testing guide the bank test; the how to audit treasury guide gives the full treasury program this one sits inside.
In this guide
- Where corporate liquidity risk comes from
- The 13-week cash forecast
- The longer forecast and the maturity ladder
- Covenants and headroom
- Revolving credit facilities and their fine print
- Commercial paper, backstops and supply chain finance
- Cash pooling, trapped cash and bank counterparties
- The corporate liquidity stress test and contingency plan
- What rating agencies and auditors look at
- Failures and what they show
- Internal audit’s program
- A worked example: Brightwater Foods’ first liquidity audit
- Questions about corporate liquidity risk
- Related guides
Where corporate liquidity risk comes from
A company’s cash position is the net of operating flows (collections from customers less payments to suppliers, employees and tax authorities), investing flows (capital expenditure, acquisitions, disposals) and financing flows (debt drawn and repaid, dividends, buybacks). Liquidity risk arises wherever those flows can move against the company faster than it can respond. The table lists the sources that matter in practice and the signal each one gives in advance.
| Source | How it drains cash | Leading indicator |
|---|---|---|
| Working capital swings | Growth, seasonality or a stock build consume cash before sales convert; a slowdown leaves inventory unsold | Cash conversion cycle (DSO plus DIO less DPO) lengthening; inventory days rising faster than sales |
| Customer concentration and payment behavior | A large customer paying late, disputing invoices or failing removes a block of receipts at once | Top-ten customer share of receivables; aged receivables; disputes; customer credit ratings |
| Supplier terms and concentration | Suppliers shorten terms, demand prepayment or withdraw credit insurance when they sense weakness | Credit insurer limit reductions; requests for letters of credit; DPO falling involuntarily |
| Debt maturities | A bond or term loan due in a closed market must be refinanced or repaid from cash | Maturity ladder; months to the next maturity versus liquidity available; market conditions |
| Covenant triggers | A covenant breach lets lenders accelerate, block drawings or reprice | Headroom to each covenant under the forecast; EBITDA trend |
| Contingent obligations | Guarantees, letters of credit, derivative margin calls, pension contributions, litigation, warranty claims | Schedule of contingent exposures; rating and collateral triggers in contracts |
| Bank and counterparty concentration | Cash held at a failing bank is frozen; an undrawn line from a troubled lender may not fund | Cash by bank versus insured limits; lender credit quality |
| Trapped cash | Cash in subsidiaries, currencies or jurisdictions that cannot be moved to where obligations fall due | Cash by entity and currency; repatriation constraints; intercompany limits |
| Operational failure | A payment system outage, a cyber incident or a treasury error stops cash moving | Treasury system resilience; dual controls; incident history |
The 13-week cash forecast
The 13-week direct cash forecast is the central instrument of corporate liquidity management. It projects receipts and payments by week for a quarter ahead, built from the bottom up: expected customer collections from the receivables ledger and sales forecast, payroll from the HR calendar, supplier payments from the payables ledger and purchase commitments, tax and debt service from their schedules, capital expenditure from the project plan. Each week’s opening cash plus receipts less payments gives closing cash, which is compared with available facilities to give liquidity headroom by week. Thirteen weeks is the horizon over which operational data (open invoices, scheduled payments) is specific enough to be reliable and over which management can act (delay a payment, accelerate a collection, draw a line). The forecast is rolled weekly, and the discipline that makes it useful is variance analysis: comparing last week’s forecast with actual cash flows by line, explaining the differences, and feeding the explanations back into the assumptions. A forecast that is never compared with actuals is a budget, and a budget is not a liquidity tool.
| Line | Source of the forecast | Typical accuracy problem | Test of the forecast |
|---|---|---|---|
| Customer receipts | Open receivables by due date, adjusted for payment behavior by customer; sales forecast for weeks beyond current terms | Assumes customers pay on time; ignores disputes and seasonal slow payers | Compare forecast receipts with actual by week for the last quarter; accuracy within 5 to 10 percent at week one, widening thereafter, is typical of a good forecast |
| Supplier payments | Open payables by due date; purchase orders and commitments; recurring payments | Omits unrecorded liabilities and commitments not yet invoiced | Trace a sample of actual payments in a past week to the forecast that preceded it |
| Payroll and taxes | Payroll calendar; tax calendar | Rarely wrong; bonuses and annual payments sometimes missed | Agree to the calendars |
| Debt service | Loan and bond schedules | Floating rate changes; fees | Agree to agreements |
| Capital expenditure | Approved projects’ payment schedules | Timing optimism; retention payments | Compare with project actuals |
| Facilities available | Committed lines less drawings and letters of credit; borrowing base for asset-based lines | Borrowing base overstated by ineligible receivables or inventory | Recompute the borrowing base; confirm availability with the agent bank |
| Opening cash | Bank balances, consolidated | Includes trapped or restricted cash | Reconcile to bank statements; segregate restricted and trapped cash |
Two design points separate adequate forecasts from good ones. First, the forecast should show liquidity headroom, not just cash: closing cash plus undrawn committed facilities less a minimum operating cash balance, by week, because a company with $4 million of cash and $20 million of undrawn revolver is in a different position from one with $4 million and nothing. Second, it should carry a downside case alongside the base case, with the two or three assumptions that matter most (the largest customer’s payment timing, the seasonal stock build, a disputed receipt) flexed, so that the headroom line shows the range rather than a point. The cash management and bank reconciliations guide covers the controls over the cash the forecast starts from.
The longer forecast and the maturity ladder
Beyond thirteen weeks, cash forecasting switches to the indirect method: the budget or business plan’s income statement and balance sheet are converted to cash flows (EBITDA less tax, less working capital movement, less capital expenditure, less interest and debt service, plus or minus financing) by month or quarter for one to three years. Its purpose is structural: to show when debt maturities arrive relative to free cash flow, whether covenants hold under the plan and its downside, and how large a refinancing need is and when. The maturity ladder lists every facility and bond by maturity date with amount, drawn balance and refinancing options, and the question it answers is the one lenders ask first: how many months of liquidity does the company have before it depends on a market being open? Companies with investment-grade ratings aim to refinance twelve to eighteen months ahead of maturity; leveraged companies that leave a maturity inside twelve months find their auditors discussing going concern and their lenders discussing fees.
Covenants and headroom
Financial covenants are the tripwires in loan agreements that convert a deteriorating business into a default event before the company actually runs out of cash. The common ones are a leverage ratio (net debt to EBITDA, tested quarterly on a trailing twelve-month basis, with a maximum such as 3.0 or 3.5 times), an interest coverage or fixed charge coverage ratio (EBITDA or EBITDA less capital expenditure to interest, or to interest plus scheduled principal and lease payments, with a minimum such as 1.2 or 3.0 times), a minimum liquidity or minimum net worth test, and in asset-based lending a borrowing base that limits drawings to a percentage of eligible receivables and inventory, with a springing fixed charge covenant that applies only when availability falls below a threshold. Each covenant has a definition (what counts as EBITDA, which add-backs are permitted, how leases and letters of credit are treated) that can differ from the accounts, and the headroom calculation must use the agreement’s definitions. Headroom is the distance between the actual ratio and the limit, expressed as the EBITDA decline (or debt increase) that would breach it; a company at 2.6 times against a 3.0 times leverage covenant has about 13 percent EBITDA headroom, which a bad quarter can consume. The consequences of a breach are an event of default that permits acceleration and blocks further drawings, in practice followed by a waiver negotiation in which the lenders charge a fee, raise the margin, tighten terms and often demand more information; the cost of the waiver is rarely the problem, the loss of control is. Headroom should be monitored monthly on the forecast, not only at the quarterly test date, because a breach visible two months ahead can be negotiated from strength and one discovered at the test date cannot.
| Covenant | Typical definition | Typical limit | What erodes headroom fastest |
|---|---|---|---|
| Total leverage | Total debt (sometimes net of cash) to trailing twelve-month EBITDA as defined, with permitted add-backs | 3.0 to 4.5 times; higher in leveraged deals; stepping down over time | An EBITDA decline; an acquisition funded with debt; a seasonal drawing at the test date |
| Interest coverage | EBITDA to cash interest expense | At least 2.5 to 3.5 times | Rising rates on floating debt; a margin step-up after a downgrade |
| Fixed charge coverage | EBITDA less capital expenditure and taxes to interest plus scheduled principal and lease payments | At least 1.1 to 1.25 times | Capital expenditure overruns; lease additions |
| Minimum liquidity | Cash plus undrawn committed facilities | A fixed amount or a share of debt | A seasonal low point; letters of credit reducing availability |
| Borrowing base (asset-based) | Eligible receivables (typically 80 to 85 percent advance rate) plus eligible inventory (50 to 65 percent of cost, or an orderly liquidation value), less reserves | Drawings capped at the base; springing covenant below an availability threshold | Receivables aging past 90 days; concentration caps; inventory becoming ineligible; appraisal declines |
| Reporting and information covenants | Monthly or quarterly financials, compliance certificates, forecasts | Deadlines | A late certificate is a technical default that signals disorder |
Revolving credit facilities and their fine print
The committed revolving credit facility is the corporate liquidity buffer: a syndicate or a single bank commits to lend up to an amount for a term (three to five years), the company pays a commitment fee on the undrawn portion (commonly 0.20 to 0.50 percent a year, more for weaker credits) and a margin over the reference rate on drawings, and may draw, repay and redraw at will. The commitment is what distinguishes it from an uncommitted line, which the bank may decline to fund. The fine print decides whether the commitment holds when it is needed. Conditions precedent to each drawing typically include that representations remain true and that no default has occurred; a covenant breach therefore blocks drawings exactly when the company needs them. Material adverse change clauses, where they survive negotiation, let lenders refuse to fund on a judgment about the company’s prospects. Clean-down requirements force the balance to zero for a period each year. Letters of credit issued under the facility reduce availability. Defaulting lender provisions matter when a syndicate member cannot fund (the 2008 lesson, when some banks did not honor commitments). In March 2020, as commercial paper and bond markets froze, US companies drew well over $200 billion on their revolvers in about three weeks, the largest drawdown wave on record, and the facilities held, which confirmed the instrument’s value; the companies that struggled were those whose covenants were already tight or whose facilities had material adverse change conditions. Treasury should keep a one-page summary of every facility’s drawing conditions and test a drawing of a modest amount at least annually, for the same reason a bank tests its discount window access.
Commercial paper, backstops and supply chain finance
Larger companies fund working capital with commercial paper: unsecured notes of up to 270 days (in the United States) sold to money market funds and other investors at rates below bank borrowing. The market is open only to companies with short-term ratings in the top tiers (A-1/P-1 and A-2/P-2), and it closes to a company, or to everyone, without notice; investors stop rolling the paper at maturity and the company must repay from cash or a bank line. Rating agencies therefore expect, and investors assume, that commercial paper is fully backed by committed bank facilities (a backstop) so that maturing paper can always be repaid; a program larger than its backstop is a liquidity risk in itself. Supply chain finance (reverse factoring) lets suppliers be paid early by a bank at a discount based on the buyer’s credit, while the buyer pays the bank at the extended due date; it improves the buyer’s days payable and the supplier’s cash, and it also disguises bank debt as trade payables and can disappear overnight if the bank withdraws, which is what happened to the clients of Greensill Capital in March 2021 and what helped conceal Carillion’s leverage before its January 2018 collapse. Since fiscal years beginning after 15 December 2022, US GAAP (ASU 2022-04) requires buyers to disclose the key terms, the outstanding obligation and, from 2024, a roll-forward of supplier finance programs, which lets analysts see the exposure; a treasury that depends on such a program should model its withdrawal as a stress scenario. The payment operations guide covers the controls over the payment side of these programs.
Cash pooling, trapped cash and bank counterparties
A multinational’s cash is spread across entities, currencies and banks, and the first liquidity question is how much of the consolidated balance is usable where the obligations fall due. Physical cash pooling sweeps subsidiary balances into a header account daily, creating intercompany loans; notional pooling offsets balances for interest purposes without moving them; both concentrate liquidity but depend on legal and tax permissions, intercompany agreements and bank documentation. Trapped cash is the balance that cannot be moved: because of exchange controls, because repatriation would trigger withholding tax or because a joint venture partner or regulator restricts it, and treasury should report usable liquidity net of it. Bank counterparty risk was a theoretical concern for most corporates until March 2023, when companies with their operating cash at Silicon Valley Bank discovered that balances above the insured limit were, for a weekend, unavailable and possibly lost; several public companies disclosed exposures in the hundreds of millions. The responses are concentration limits by bank and by rating, diversification of operating accounts, use of insured sweep and money market products for surplus cash, and a tested ability to redirect customer receipts and payroll to another bank within days.
The corporate liquidity stress test and contingency plan
A corporate stress test is simpler than a bank’s and just as necessary: take the 13-week and twelve-month forecasts and apply a scenario severe enough to matter. The scenarios that fit most companies are a demand shock (sales down 20 to 30 percent for two quarters, with inventory already bought), a customer event (the largest customer pays 60 days late or fails), a supplier squeeze (credit insurers cut limits and suppliers move to prepayment, cutting days payable by a third), a market closure (commercial paper and bond markets closed for six months at a maturity date), a covenant breach (EBITDA falls to the point of breach and drawings are blocked), and a combined case. The output is the week in which headroom turns negative and the actions that would prevent it, which become the contingency funding plan: a sequenced list of levers with owners, lead times and amounts. Levers typically run from the cheap and quick (draw the revolver, delay discretionary capital expenditure, tighten collections, extend supplier terms where relationships allow) through the costly (factor receivables, sell inventory at a discount, draw down the supply chain finance program, defer dividends and buybacks) to the strategic (sell a business, raise equity, negotiate covenant waivers in advance). The test should be run at least quarterly and whenever the plan changes, and its results should set the size of the revolver and the minimum cash balance, in the same way a bank’s stress test sets its buffer.
What rating agencies and auditors look at
Two outside parties form liquidity judgments that bind the company. Rating agencies assess liquidity explicitly: S&P assigns a liquidity descriptor from exceptional to weak based on the ratio of sources to uses of cash over the next twelve to twenty-four months (adequate requires sources of at least 1.2 times uses and positive headroom even if EBITDA falls 15 percent; strong requires 1.5 times and a 30 percent EBITDA decline), the quality of bank relationships, covenant headroom and standing in credit markets; Moody’s assigns speculative-grade liquidity ratings from SGL-1 to SGL-4 on similar factors. A liquidity descriptor below adequate caps the rating regardless of the business, and the agencies’ sources-and-uses arithmetic is a useful template for a company’s own test. External auditors must evaluate whether substantial doubt exists about the company’s ability to continue as a going concern for one year from the date the financial statements are issued (ASC 205-40, from ASU 2014-15; ISA 570 and the UK’s going concern and viability statements abroad), which turns on the same forecasts, covenants and facilities, and a company that cannot show liquidity through the look-forward period will find the discussion in its audit opinion. The UK Corporate Governance Code adds a longer-horizon viability statement (Provision 31) that listed companies such as Pennine Foods plc, the £900 million UK food manufacturer used in examples across this site, support with three-to-five-year scenario modeling; the UK SOX and Provision 29 guide covers the UK regime.
Failures and what they show
| Case | What happened | Liquidity lesson |
|---|---|---|
| Carillion (UK, January 2018) | The construction and services group entered compulsory liquidation with about £1.5 billion of debt and pension deficits after profit warnings; a large reverse factoring program had been classified within trade payables, understating reported borrowing | Supply chain finance can disguise leverage; covenants and liquidity analyses based on reported debt missed it; disclosure rules followed |
| Greensill Capital (March 2021) | The supply chain finance provider collapsed when its credit insurer declined to renew cover; client companies lost funding programs overnight and one (GFG Alliance) faced a liquidity crisis | A funding source dependent on one provider or one insurer is a concentration; model its withdrawal |
| Thomas Cook (September 2019) | The travel group failed when it could not raise a required £200 million on top of a £900 million rescue, at the seasonal low point of its cash cycle | Seasonal working capital troughs and debt maturities must be planned together; refinancing left late is refinancing at the lender’s price |
| March 2020 revolver drawdowns | Companies drew well over $200 billion on committed facilities in weeks as capital markets froze | Committed facilities work; uncommitted lines and commercial paper do not when everyone needs them |
| March 2023 bank failures | Companies with operating cash above insured limits at Silicon Valley Bank faced frozen balances until the deposit guarantee was extended | Bank counterparty concentration is a corporate liquidity risk; diversify operating accounts and test redirection |
| Leveraged retail failures (2017 to 2020) | Several leveraged retailers failed as EBITDA declines met debt maturities and tightening supplier credit at the same time | Covenant headroom, supplier terms and maturities deteriorate together; the stress test must stack them |
Internal audit’s program
A liquidity audit at a corporate is usually a component of a treasury audit (the treasury guide) or a standalone engagement after a scare. The program tests the forecast’s reliability, the covenant monitoring, the facilities’ real availability, the stress test and plan, and the governance that connects them to the board.
| Area | Tests | Evidence | Finding that recurs |
|---|---|---|---|
| Governance | Treasury policy defines liquidity objectives, minimum headroom, counterparty limits and reporting; board or finance committee receives liquidity reporting with headroom and covenant forecasts | Policy, committee packs, minutes | Policy silent on minimum liquidity; board sees cash, not headroom |
| Forecast accuracy | Back-test the 13-week forecast: forecast versus actual by line for 13 past weeks; variance explanations exist and feed assumptions; downside case maintained | Forecast versions, actuals, variance reports | No variance analysis; receipts consistently over-forecast |
| Forecast completeness | All entities, currencies and bank accounts included; restricted and trapped cash segregated; contingent obligations scheduled | Entity list, bank account inventory, contingent schedule | Subsidiary cash counted as available when it is trapped |
| Covenant monitoring | Covenant calculations re-performed to the agreement’s definitions for the last two test dates; headroom forecast monthly; compliance certificates accurate and on time | Loan agreements, compliance certificates, headroom reports | Covenant computed on reported EBITDA rather than the defined EBITDA; headroom overstated |
| Facilities | Drawing conditions summarized; a test drawing made in the period; letters of credit and borrowing base deductions reflected in availability; borrowing base recomputed from eligible assets | Facility agreements, agent confirmations, borrowing base certificates | Availability overstated by ineligible receivables; no drawing ever tested |
| Funding sources | Commercial paper fully backstopped; supply chain finance program sized, disclosed and modeled for withdrawal; maturity ladder current with refinancing plans twelve months ahead | Program documents, disclosures, maturity ladder | Supply chain finance dependence unmodeled |
| Counterparties | Cash by bank against policy limits; insured and swept balances; tested ability to redirect receipts and payroll | Bank balance reports, limit reports, redirection test | Operating cash concentrated at one bank above limits |
| Stress test and plan | Scenarios cover demand, customer, supplier, market and covenant shocks; headroom result by week; contingency plan with owners, lead times and amounts; results change the revolver size or minimum cash | Stress test, plan, committee minutes | No stress test; plan is a list without owners or lead times |
| Controls over cash | Bank reconciliations, payment authorization, bank mandate maintenance, treasury system access | The cash management and payments programs | Mandates not updated for leavers |
A worked example: Brightwater Foods’ first liquidity audit
Brightwater Foods is the $180 million private food manufacturer with three plants and about 600 staff used in examples across this site; two retail customers account for 48 percent of its sales, its highest-volume product runs on a single line at plant 2, and its chief audit executive, hired in the year the board formed an audit committee, works with one in-house auditor and a co-source firm. Brightwater is funded by a $40 million asset-based revolving credit facility (advance rates of 85 percent on eligible receivables and 60 percent on eligible inventory at cost, a springing fixed charge coverage covenant of 1.1 times that applies when availability falls below $6 million) and a $25 million term loan with a maximum total leverage covenant of 3.0 times and a minimum fixed charge coverage of 1.2 times, tested quarterly. In the second year of the function, after a quarter in which a packaging supplier moved the company to prepayment terms with two weeks’ notice, the audit committee asked for a liquidity review, and the CAE scoped it at 180 hours with 40 hours of co-source treasury expertise.
| Test | What the audit found | Rating and action |
|---|---|---|
| 13-week forecast back-test (13 weeks of forecast versus actual) | Receipts forecast within 6 percent at week one and 14 percent at week four; payments within 4 percent; the controller ran a variance review each Monday and the assumptions showed the corrections | No finding; noted as a strength |
| Covenant re-performance (last two quarters) | The leverage covenant had been computed on EBITDA including a $1.4 million insurance recovery that the agreement excluded as non-recurring; the defined ratio was 2.84 times against the 3.0 times limit, not the 2.61 times reported, leaving 5 percent EBITDA headroom rather than 13 percent; the compliance certificate had been signed on the wrong figure | High; certificate corrected and re-issued with the lender’s agreement; covenant definitions built into the monthly close |
| Borrowing base recomputation | $2.1 million of receivables from the two large customers exceeded the agreement’s 25 percent concentration cap and were ineligible; reported availability of $9.4 million was $7.6 million, within $1.6 million of the springing covenant trigger | High; borrowing base certificate corrected; availability now reported against the trigger weekly |
| Forecast headroom under a downside case | No downside case existed; the audit’s scenario (the larger customer paying 45 days late during the seasonal stock build) took availability below the $6 million trigger in week nine, springing the fixed charge covenant, which the company would have met at 1.14 times | Medium; downside case added to the weekly forecast with the trigger shown |
| Facility drawing conditions | Summarized by the audit for the first time; the revolver required a no-default representation at each drawing; no drawing had been tested as a process, though the facility was drawn routinely | Low; one-page facility summary adopted |
| Supplier terms and credit insurance | Three of the ten largest suppliers had reduced terms in the year after their credit insurers cut limits on Brightwater following the late filing of the prior year’s accounts; days payable had fallen from 41 to 33 | Medium; treasury to engage the insurers with the current forecast; accounts filing calendar owned by the controller |
| Bank counterparty | All operating cash at one bank, the lender; surplus swept nightly to an insured product since 2023 | No finding; concentration accepted with the sweep |
| Stress test and contingency plan | None existed; the audit’s recommendation was a quarterly test on three scenarios (customer delay, supplier squeeze, demand shock) feeding a contingency plan | Medium; adopted; first run showed the revolver adequate with the term loan covenant as the binding constraint |
The committee’s reading of the report was that the forecast the company relied on was good and the headroom it believed in was not: two reporting errors, neither large, had made a company with 5 percent covenant headroom and $1.6 million of borrowing base cushion look like one with 13 percent and $3.4 million. The actions were cheap (definitions built into the close, a weekly availability line, a downside case, a one-page facility summary, a quarterly stress test), and the CFO’s comment to the committee was that the audit had cost 220 hours and a waiver negotiation would have cost more. The first 90 days as CAE and one-person audit shop guides tell the earlier chapters of Brightwater’s function, and the assurance mapping guide shows where treasury sat in its map.
Questions about corporate liquidity risk
What is corporate liquidity risk?
The risk that a company cannot meet its obligations as they fall due at an acceptable cost. It arises from working capital swings, customer and supplier behavior, debt maturities, covenant triggers, contingent obligations, bank counterparty exposure and trapped cash, and it is managed with forecasts, committed facilities, covenant headroom and a contingency plan.
What is a 13-week cash flow forecast?
A weekly direct-method projection of receipts and payments for the next quarter, built from the receivables and payables ledgers, payroll, tax and debt schedules and capital plans, rolled every week and compared with actuals. Its output is liquidity headroom by week: cash plus undrawn committed facilities less a minimum operating balance.
What is covenant headroom?
The distance between a covenant ratio as defined in the loan agreement and its limit, usually expressed as the EBITDA decline or debt increase that would cause a breach. It should be computed on the agreement’s definitions, not the reported accounts, and forecast monthly rather than checked only at the quarterly test date.
Why does a committed revolver matter more than cash?
Because a committed facility is contractual liquidity that can be drawn when markets close, while uncommitted lines and commercial paper disappear in stress. Its value depends on the fine print: drawing conditions, material adverse change clauses, letters of credit that reduce availability and borrowing base eligibility.
How does supply chain finance affect liquidity risk?
It extends the buyer’s payment terms through a bank while paying suppliers early, which improves working capital but creates a dependence on the bank’s and its insurer’s continued participation; the program can be withdrawn without notice, and it can disguise borrowing as trade payables. US GAAP now requires disclosure of such programs.
What should internal audit test in a corporate liquidity review?
The forecast’s accuracy against actuals, covenant calculations against the agreement’s definitions, the real availability of facilities (borrowing base, drawing conditions, test drawings), funding concentrations (commercial paper backstops, supply chain finance, bank counterparties), the stress test and contingency plan, and whether the board sees headroom rather than cash.
Related guides
- How to audit treasury — the full treasury program this review sits inside.
- How to audit cash management and bank reconciliations — the controls over the cash the forecast starts from.
- How to audit payment operations — the payment side of funding programs.
- How to audit accounts receivable — the receipts the forecast depends on.
- How to audit inventory — the working capital that consumes cash.
- Liquidity risk — the bank version of the subject.
- Liquidity stress testing — scenarios, horizons and the death spiral at banks.
- Risk appetite, tolerance, capacity and limits — the minimum liquidity tolerance and where it sits.
- Designing a KRI program — leading indicators for cash and covenants.
- UK SOX and Provision 29 — the UK going concern and viability regime.
- Strategic risk — when the liquidity problem is the business model.
- Assurance mapping — where treasury sat in Brightwater’s map.
- The one-person audit shop — Brightwater’s function in year one.
- Your first 90 days as CAE — how the function began.
- The Risk Library — every risk type on this site.
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