How scenario planning helps companies prepare for liquidity challenges

Even profitable businesses can run low on cash. A sudden increase in costs or disruption to supply chains can put pressure on liquidity and their working capital, leaving them struggling to meet their financial obligations.

So as geopolitical tensions and market volatility complicate financial decisions, businesses need to understand not just how much liquidity they have, but how much they might need if conditions deteriorate. Liquidity risk management is now a critical discipline, and businesses need:

• Better visibility into likely cash flow and liquidity pressures ahead
• Rigorous decision-making frameworks as part of their financial resilience planning
• The ability to balance managing risk and maintaining growth

Liquidity stress testing can show leaders where their vulnerabilities are and help them strengthen their defenses with a corporate liquidity strategy before a threat hits. But financial resilience is not just about preparing for the worst. Businesses also need to retain the flexibility to invest and grow, even when the outlook is uncertain.

“Leaders rarely have the luxury of waiting for uncertainty to disappear. Scenario planning helps them understand potential outcomes, make informed decisions, and balance managing risk with investing for growth. A strong banking partner can bring additional perspective and insights to help clients evaluate their options and prepare for what may come next,” says Ryan Hutchins, executive vice president and head of strategy and business development for the institutional client group at U.S. Bank.

Financial resilience is not simply about building up the balance sheet to withstand every conceivable risk, he says. Business leaders must also consider which risks they can afford to take to pursue opportunities for growth.

What does this look like in practice?

Quantify the liquidity balancing act

In practice, businesses don’t work with a single pool of liquidity. Instead, they use:

• Operating liquidity to run the business day to day, ensuring there’s enough money coming in to manage money going out
• Reserve liquidity – a separate pool of funding they can draw down quickly in the event of an unexpected cost or liability
• Strategic liquidity that gives them a way to fund future projects and capital expenditures, or even activity such as M&A

Balancing these needs is an essential part of liquidity risk management, according to Dhiren Patel, senior vice president and head of liquidity solutions at U.S. Bank. “You have to decide what the right size is for each of these three liquidity pools,” he says. “That includes deciding when the business might have excess liquidity in any or all of these different pools. That’s because there’s an opportunity cost of not investing those dollars, as well as costs on unused credit facilities.”

Realistic and thorough scenario planning is a way for businesses to make these judgments. If a worst-case scenario could cost the business $100 million, having access to $75 million of liquidity would leave it exposed. But combined cash and credit facilities of $150 million might look excessive.

Using liquidity forecasting and liquidity stress testing to carry out this analysis can help businesses see where they have gaps and where they might need to reallocate surplus liquidity.

Look wide for a full picture

Where scenario planning identifies a potential gap in liquidity in an area of the business, such as in a particular subsidiary or geography, finance leaders may be able to access liquidity somewhere else. But they won’t know this unless they have high-quality visibility into the business’s overall position.

It gets harder to achieve this visibility as businesses grow. Unlike smaller companies, which might hold most of their cash in one place, larger companies often have funds spread across multiple subsidiaries, accounts, banks, and countries.

Treasury management systems are one way for businesses to keep track of liquidity as they grow. “Technology allows you to centralize visibility even where you are no longer able to centralize operations,” says Patel. “It provides a way to bring everything back together.” In addition to tracking internal liquidity data, these systems also need to connect effectively to the systems of third-party service providers – particularly banking partners.

Use group liquidity to address funding needs

Once they have a clear view of liquidity across the business, companies may be able to address funding shortfalls by moving cash between subsidiaries or business units, instead of raising additional funds. But meeting the needs of one part of the business can’t leave another area exposed, which is where financial resilience planning comes in.

To plan seamlessly, many organizations will need to improve their financial systems and take advantage of tools available from their banking partners. This could also include reviewing what processes are centralized within the treasury function. Pooling arrangements and intercompany borrowing facilities make it much easier to transfer liquidity to where it’s needed most, even in the biggest multinational organizations. Other success factors include:

• Integrated treasury management systems
• Enhanced connectivity to external service providers
• Detailed understanding of the broader potential impacts of any transfers

“The technology is now strong enough to create interoperability across multiple banking relationships, with standardized integrations that enable real-time payments,” says Patel. “But companies operating internationally still need to consider the potential tax implications, currency costs, and other consequences of transferring funds.”

Another priority should be to address fraud risk. Using technology to eliminate friction from liquidity management processes can increase resilience, but it can also leave the organization more vulnerable to bad actors. Real-time payment functionality, for instance, may mean there’s not enough time for checks and authorizations.

Broaden stress testing to avoid new risks

Even the most thorough liquidity planning can’t anticipate every risk. As market conditions change and new threats emerge, businesses need to revisit their assumptions and run liquidity stress testing scenarios – such as a drop in revenue, delayed customer payments, higher borrowing costs, or supply chain disruptions – to see how they could affect their cash flow. Regular liquidity stress testing can help them identify potential shortfalls and can give them more time to respond.

The risks businesses need to test for will vary depending on their operations and financial exposure. Unlike banks, which must meet stress-testing requirements set by regulators, most companies are responsible for identifying and assessing their own potential risks. External advisors, including bankers, can help businesses identify risks by drawing on their experience with similar companies. Third-party data, such as consumer spending forecasts and supply chain risk assessments, can also help businesses build more realistic scenarios and improve the accuracy of their stress tests.

“Companies should be looking to their trusted advisors for support here,” says Patel. “An advisor can help you understand what scenario planning has looked like in the past and provide data and insight based on your business objectives.”

Banks in particular may also be able to provide access to advanced technologies, including tools enabled by artificial intelligence. The U.S. Bank Fall 2026 CFO Insights Report found a strong appetite for using advanced technology in this area. Finance leaders report growing adoption of agentic AI in treasury and payments, especially in cash forecasting, liquidity management, fraud prevention, and cybersecurity. Adoption is particularly high among companies with more than $5 billion in annual revenue, where 74% of finance leaders report using agentic AI for cash forecasting and liquidity management, compared with 23% at companies with annual revenue between $100 million and $249.99 million.

Get banking support to manage liquidity risk

How should businesses respond to a potential liquidity risk identified by scenario planning? Increasing cash reserves, expanding credit facilities, and transferring cash to where it’s most needed may all be part of liquidity contingency planning, but there’s no single answer.

“Engage with your bankers to really understand what options you have,” says Patel. “In particular, your primary banking partner should have a deep understanding of how money is flowing in and out of your business.”

At the heart of liquidity is the working capital that sits between accounts receivable and accounts payable. If the business can optimize that working capital, it will help it become more strategic about liquidity across the business. What that looks like in practice will vary, but banking advisors can play a critical role.

Ultimately, effective liquidity risk management is about risk versus opportunity. Businesses need enough cash and access to credit to withstand unexpected shocks, but holding too much liquidity can tie up resources that could otherwise support growth. The right corporate liquidity structure will balance these competing demands, giving companies the financial resilience to manage uncertainty while retaining the flexibility to invest in their future.

As market conditions continue to evolve, realistic scenario planning and liquidity forecasting can help your organization balance financial resilience with the flexibility to pursue growth. Contact your U.S. Bank relationship manager to learn how U.S. Bank can help you strengthen your liquidity risk management and position your business for what’s next.

Build dashboards for visibility and control

The finance function needs access to a dashboard that shows it the existing state of the business and incorporates predictive analytics to see where it’s going next. Authorizations will be set according to each finance user’s role, and they will use the dashboard in different ways. Some will use it for operational tasks such as managing transactions; others will use it for more strategic purposes, such as planning and forecasting.

A dashboard that’s based on high-quality data enables team members at more senior levels to monitor metrics such as numbers of exceptions and anomalies, and to retain control over transactions that sit outside normal policies and limits. This can also improve capital allocation efficiency by ensuring that payments and accounts teams are operating within the parameters set by the business.

“You need to be able to customize the experience so that individual users can do their jobs,” says Venturo. “For some users, that job will involve specific operational tasks. But leaders at the highest levels of the company need to be able to see the whole picture so they can make informed decisions.”

Some companies may choose to develop their own dashboards by bringing in data from their own systems and from those of their banking partners. Others may want to use tools provided by those banks, exporting their data to third-party systems that give them the visibility and functionality required.

Automate to optimize capital allocation efficiency

Even relatively simple cash flow decisions can affect a business’s capital position, particularly at scale. A vendor that requires payment on 30-day terms, for instance, may offer a discount if the payment is made within 10 days; the business then has to assess whether to accept this offer based on the cost of cash versus the value of the discounted invoice.

“Making that sort of decision about a single transaction is relatively straightforward, but across hundreds of millions or even billions of dollars’ worth of payments, it’s a much more complex problem – particularly in real time,” says Venturo. “But modern cash flow forecasting tools can analyze your current cash position, your liquidity, and your cost-of-cash and of credit to predict your future cash balances, assess the marginal cost of each decision, and make a recommendation about how to proceed.”

For large enterprises that are constantly trying to optimize capital allocation and cash flow, this is a powerful capability. It’s common for businesses’ cash balances to vary from one month to the next. For example, it could be because the payment for a large project generates significant cash, or the cost of a significant outlay depletes balances. External factors, including the cost of credit, can also shift.

So automating analysis and decision-making based on sophisticated AI cash flow forecasting could be critical. And finance teams that are still trying to make key decisions about cash flow using manual workflows and incomplete data will miss out on the value of automation.

Increase forecast accuracy to demonstrate how finance adds value

“Finance leaders want to be seen as strategic partners and to work closely with C-suite colleagues, including the CEO, to build the business. Cash flow forecasting tools could help them by giving them a way to reduce costs, increase revenues, and optimize capital.

Simple steps, such as making full use of a variety of payment options, can have a significant impact at scale because some payment channels are more cost-effective than others. Some, such as corporate credit cards, may generate rebates. Others can unlock better terms from suppliers. There will also be improvement opportunities in accounts payable: many of the same calculations about discounts offered and payment channels accepted will naturally apply.

Finance needs tools that assess these opportunities so it can take advantage of them while understanding the impacts on future cash flow and liquidity. “Now you’re adding value just like other business units, where previously you might have been viewed as a cost to the company,” says Venturo. “And because all that value is in the data, you can audit and prove the value of sophisticated finance and treasury operations as a profit center.”

Keep people involved in critical decisions

Predictive analytics tools will support finance and treasury teams rather than replace them. By bringing financial data together in one place, businesses can produce more reliable cash flow forecasting and help finance leaders make better decisions.

AI tools can improve over time, so it’s important to ensure that finance professionals are vigilant. At the same time, while technology is an extremely useful enabler, human judgment remains critical. “What AI delivers is the ability to go from having data in lots of places to very rapidly understanding what that data is telling you,” says Venturo. “Then the question is, ‘what do you want to do about that?”

Better cash flow forecasting helps finance leaders make faster, more informed decisions. It gives them confidence to act and the insight they need to avoid unnecessary costs. That can help them use their capital more productively and gain an edge over their competitors.

As finance takes a more strategic role, the right banking relationship can help connect day-to-day cash management with long-term business goals. U.S. Bank brings together treasury, payments, and financing capabilities to support that bigger picture. Contact your relationship manager to discuss ways to put your capital to work more effectively.