Key takeaways
- Good cash visibility lets you see risks before they become a problem.
- Segmenting cash based on when it may be needed could help businesses balance access, resilience and the potential to earn interest on surplus reserves.
- Stress testing your plans for different scenarios builds resilience against rising costs.
- Working capital management is a tool for growth and not just a way to survive.
Why should businesses review their liquidity strategy?
Business conditions in 2026 continue to move fast, with many SMEs balancing cost pressures, evolving customer demand and the need to keep enough cash available for day-to-day operations.
When cash is not aligned to business priorities, it can limit agility – whether that means moving quickly on a strategic opportunity, absorbing supplier disruption or responding to a shift in demand.
A regular liquidity review can offer a clearer view of where cash is held, when it may be needed and how readily it can be accessed. That visibility could help businesses balance day-to-day liquidity requirements with the potential to generate returns on surplus reserves.
What is liquidity management?
Liquidity is how quickly you can turn what you own into cash to pay what you owe. For an SME, managing this means making sure you always have enough money to cover your costs.
It is not just about the money in your bank account today. It involves looking at your inventory, what customers owe you, and your savings.
Working capital is the money you use for your daily jobs. You calculate it by taking what you own in the short term and subtracting what you owe in the short term. Cash reserves are the funds you keep back for a rainy day or big plans. By managing these well, you make sure your business stays healthy even when things get tough.
Why does liquidity matter right now?
This year has brought new pressures that were not as strong a few years ago. Businesses are also having to plan around evolving regulation, supply chain pressure and shifts in customer demand - all of which can affect cashflow and working capital.
Liquidity matters because it gives you a safety net. If a customer pays late or a bill is higher than you thought, having liquid funds means you do not have to scramble for expensive loans.
Having liquid cash also means you can be bold. When a competitor struggles or a new piece of technology comes out, you have the funds to act.
How could businesses segment their cash?
Not all business cash needs to serve the same purpose. Segmenting it into three broad categories can help align cash with different operational, reserve and strategic needs.
Operational cash is the money you need for daily bills, wages, and stock. This should stay in accounts with instant access so you can use it right away.
Core reserves are funds that may be needed in the next few months for planned costs or as a buffer. Depending on your needs and eligibility, notice accounts may be worth considering, as they can offer a different rate depending on the product terms and access conditions.
Strategic cash is money set aside for longer-term plans, such as future investment, premises or major projects. NatWest offers fixed term deposits that may be suitable for some surplus cash, depending on when the funds are needed and the business’s wider cashflow requirements. The rate will depend on the product, term and market conditions.
Specific eligibility criteria may apply for any products and services that we offer.
What role can deposits play in managing liquidity?
Deposits can form part of a broader cash strategy. They can help businesses manage access to surplus cash, support liquidity planning and potentially earn interest, depending on the product selected and the terms that apply. Using a mix of savings products may help businesses balance accessibility, certainty and return in line with their cashflow needs.
For example, instant access savings may allow funds to be moved back to a main account when needed, subject to product terms. Fixed term deposits can provide certainty on the interest rate for an agreed period, which may support longer-term planning where cash is not required immediately. These products should be considered as part of a wider plan for how cash moves through the business.
How to improve your cash flow forecasting
To manage liquidity well, you need to see the future as clearly as possible. Start by looking at your data. Use digital tools to see patterns in when customers pay you. If you see that certain months are always tight, you can plan.
You should also try stress testing. This means asking what would happen if your biggest customer left or if your costs went up by 10 per cent.
By playing out these scenarios now, you can fix problems before they happen. Reviewing your payment terms with suppliers and customers can also help. If you can get paid faster and pay others at a fair pace, your working capital will look much better.
