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Does Cash Flow Forecasting Reduce Liquidity Risk?

June 18, 2013 − by Keith − in Blog − Comments Off on Does Cash Flow Forecasting Reduce Liquidity Risk?

In the financial world, cash flow forecasting is a most powerful tool. It allows you to see how your financial decisions impact each other in the future. Because you are made aware of potential risks through cash flow forecasting, you are able to reduce your liquidity risk.

Liquidity risk is the possibility that you will not be able to meet financial obligations. You may see these obligations with a minimal risk for failure to uphold them, when you originally take them on, but your cash flow forecasting may demonstrate that using current methods, it is impossible for you to avoid liquidity risk.

The only solution would be to adjust your debts and assets so that you are able to meet your financial obligations — and hopefully do so without risking increased debt or a decrease in assets. Once you have all the information laid out before you, it is much easier to see where adjustments should be made.

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