Where cash forecasting answers what the position will be, liquidity planning answers what to do about it. That means how much headroom to hold, in what form, and which responses apply in sequence if a shortfall emerges.

Businesses that skip this step reach a funding gap with no plan and negotiate facilities from a weak position.

Defining the liquidity buffer

How much headroom is enough is a judgment, not a formula. It depends on cash flow volatility, the concentration of receipts among a few large customers and how quickly committed facilities can be drawn in practice. A contracting business that depends on a few main contractors needs a larger buffer than a distributor with many customers on short terms. Setting the target deliberately is better than discovering it during a squeeze.

Facility structure and headroom

Liquidity comes from cash balances and from committed facilities, and the mix matters. Undrawn committed facilities cost commitment fees but provide certainty. Uncommitted lines cost nothing until used but can be withdrawn precisely when needed. We map current facilities by type, tenor, covenant and drawdown mechanics, which can reveal that headroom available on paper is less accessible than assumed. This connects to debt advisory where the overall structure needs rethinking.

Stress testing

The plan is tested against scenarios drawn from realistic business risk: the largest customer paying late, a major receipt slipping into a later period, a facility not being renewed. The output is a set of trigger points and pre-agreed actions instead of a probability, so a response is executed rather than debated when a scenario begins to materialize.

A hypothetical example

Consider a Riyadh services group that holds what leadership considers comfortable cash, until a government client delays payment on two contracts at the same time. Most of its receipts come from a few large public sector clients, and its overdraft facility is uncommitted and subject to periodic review by the bank.

Ongoing governance

Liquidity planning is reviewed on a regular schedule and after any material change: a new facility, a large contract win, a change in customer payment behavior. It also connects to enterprise risk management, since liquidity is often among the main risks on a group’s register and one where mitigation is concrete and testable.

Communicating the position to lenders

Banks tend to respond better to a business that arrives with a considered liquidity plan than to one that arrives needing money. A plan showing stress scenarios, defined triggers and pre-agreed responses signals competence, and it is easier to secure or extend a facility before it is needed than during a squeeze. This is a large part of why liquidity planning connects directly to bank financing conversations and to how the group’s overall debt structure should be shaped.

Updating after a material event

A liquidity plan loses value quickly if it is not updated. Winning a large contract, a key customer paying late or a facility renewing on different terms each changes the picture enough to warrant a review. We define the triggers that call for an immediate update instead of waiting for the scheduled review, because the most important moment for a liquidity plan is when something changes.

Documenting the assumptions behind the plan

A liquidity plan is hard to question or update if its assumptions are not written down. We document the assumptions on collection patterns, facility availability and capital spend timing. When reality changes, anyone can then see which assumption no longer holds and why, instead of rebuilding the logic from memory under pressure.