Cash and Liquidity Management Confidence Levels Declining Among Executives

Staff Report

Thursday, May 11th, 2023

Despite high expectations of a recession in the next 18 months and declining confidence in cash and liquidity management, C-suite and other executives are turning to cost containment strategies and advanced technologies to ease concerns, according to a recent Deloitte poll.

Three-quarters of polled executives (74.6%) expect a recession in the next 18 months, with 36.3% expecting one inside of six months. At the same time, confidence levels in cash and liquidity management have decreased. While many executives remain confident in their organizations' cash and liquidity management abilities (79.5%), this number is down roughly five points from 84.6% in October 2020.

"Rising inflation, high interest rates and market uncertainty make everything from demand planning to payment term negotiations to forecasting exponentially harder, affecting overall liquidity management confidence levels," said Mike Quails, a Deloitte Risk & Financial Advisory managing director specializing in value creation strategies for distressed and rapid growth companies, Deloitte Transactions and Business Analytics LLP. "Recognizing these challenges, many leading executives are adopting liquidity planning measures to help increase transparency and free up cash."

Nearly half of respondents (49.8%) say their organizations plan to focus more on liquidity management in the coming 12 months. Executives are most likely to focus related planning on cost containment, including reviewing vendor contracts, staffing costs and spans of control (31.6%). Others will look to manage liquidity via working capital (21.4%; e.g., receivables, inventory, payables) or liquidity risk efforts (16.3%; e.g., more frequent and/or deeper cash-flow forecasting).

Supporting liquidity management with advanced technology on the rise
One-fifth of respondents report using technologies like advanced analytics, AI and machine learning to manage liquidity (20.5%), compared to 13.5% in October 2020. As the number of those using advanced technology for liquidity management climbs, the rate of those with no plans to do so is dropping (34.5% with no plans in 2023; 46.8% had no plans in 2020).

"New technology adoption tends to drop off ahead of expected recessions, as implementation costs and unknowns around impact and ROI can give some organizations cold feet," said Ryan Maupin, a Deloitte Risk & Financial Advisory managing director and U.S. turnaround and restructuring leader, Deloitte Transactions and Business Analytics LLP. "We're encouraged that so many of our polled executives see that the overall cost savings and operational benefits of adopting next generation liquidity planning solutions typically outweigh the cost of investment, with many organizations achieving cost reductions, labor efficiencies and ultimately, more accurate downturn planning."