Comparison of direct and indirect liquidity planning: Treasury vs. Controlling

Liquidity planning is a key element of financial management in companies. The aim is to ensure that sufficient funds are available at all times to cover current liabilities, while at the same time ensuring that capital is used efficiently. Two different approaches have become established: direct liquidity planning, as typically used in treasury, and indirect liquidity planning, which is more closely associated with controlling. Both methods have their right to exist, but they pursue different goals and are based on different data sources and assumptions. This article highlights the differences, similarities, advantages, and disadvantages of both approaches.

Direct liquidity planning in treasury

Direct liquidity planning is based on concrete, real cash inflows and outflows. Cash flows are planned on the basis of actual transactions – e.g., customer orders received, outstanding liabilities, payment runs, planned investments, or financing.

Features:

• Time horizon: Short to medium term (typically 1 day to 13 weeks, sometimes up to 12 months)
• Data basis: Specific payment data from ERP systems, e.g., SAP FI, bank interface
• Transaction level: Detailed view of individual payments (e.g., invoice for CHF 4,711 due on August 15)
• Currency dimension: Payments are recorded in the original currency, making the currency risk directly visible
• Objective: Ensuring short-term liquidity, managing the cash pool, optimizing financing costs

Advantage: Transparency per currency

A key advantage of direct liquidity planning is the mapping of transactions per currency unit. This level of detail allows the treasury to:

1. Identify currency imbalances at an early stage
   
2. Hedge through foreign exchange transactions (e.g., forwards, swaps)
3. Take concrete measures to secure liquidity in the respective currency
4. Make flexible short-term investments and borrowings in the appropriate currency > particularly interesting in the case of negative interest rates! Tip: Swap points are tighter than money market pips, which opens up new opportunities in financing!

Technological aspect: Use of a treasury management system

Another important success factor in direct liquidity planning is the use of a treasury management system (TMS). Modern systems such as SAP Treasury, Coupa, ION, Kyriba, or Nomentia enable automated, integrated, and scalable planning:

• Avoidance of manual errors: Compared to Excel-based planning, there is no risk of formula errors, media breaks, or outdated data.
• Flexible evaluations: Dashboards, filter options, and drill-downs down to individual transactions increase the analysis capability.
• Automated data integration: Interfaces to ERP systems, bank accounts, and internal subsystems guarantee up-to-date data.
• Cash flow forecasts with AI: Many TMSs now offer AI-supported forecasting functions, e.g., for extrapolating future payment flows from debtors (third parties and internal), creditors, or leasing contracts.

Especially in corporations with an international presence, direct planning with such a system enables clear competitive advantages in the form of better risk control and more adequate information, which leads to better financing decisions.

Indirect liquidity planning in controlling

Indirect liquidity planning is based on the income statement, the balance sheet, and, if necessary, other planning calculations. Cash flows are derived from planned results, e.g., by adjusting EBITDA for changes in working capital, investments, and financing activities.
Features:

• Time horizon: Medium to long term (often 12 to 36 months, sometimes 5 years)
• Data basis: Planning results from Controlling, e.g., from integrated planning calculations
• Aggregation level: Highly aggregated (e.g., cash flow from operating activities per month)
• Currency dimension: Usually consolidated to a base currency, currency risks are often not taken into account
• Objective: Strategic financial planning, capital requirement determination, budgeting

Disadvantage: No transaction level, lower currency transparency

Since indirect liquidity planning is based on period results, it typically lacks specific payment dates or structured recording per currency. This can pose a risk, especially for internationally active companies, if liquidity bottlenecks caused by exchange rate fluctuations are not identified early on.

Solution: With a direct currency-sensitive liquidity plan, the planned cash flows (sales minus costs) would have been identified as a foreign currency risk and hedged accordingly, protecting the margin. (In practice, the remaining balance sheet risk and the complexity of payment delays and multiple currencies for costs remain—also under control with the treasury liquidity plan).

Comparison: Direct vs. indirect liquidity planning

Combining both approaches: Best practice

In practice, companies are increasingly combining both approaches to obtain both operational and strategic management information. An example:

• The treasury department uses direct liquidity planning for the daily management of bank accounts, forward exchange transactions, and short-term financing measures—ideally via a TMS with automated workflows and AI support.
• Controlling supplements this with indirect planning to provide a strategic outlook over several years, e.g., for investment decisions or rating forecasts.
• Reconciliation points: Monthly closings and forecast cycles provide an ideal interface for analyzing deviations between plan and actual.

Practical example: Multinational company with 5 currencies

A company headquartered in Switzerland with branches in the US, China, and the UK can use direct liquidity planning to identify that a high cash outflow in CNY (Chinese yuan) is expected next week, while liquid funds there are insufficient. The treasury identifies this currency gap early on via the TMS and hedges CNY against USD via a currency swap. Indirect planning might not have identified this bottleneck, as the P&L positions are consolidated and smoothed over time.

Summary of pros and cons

Direct liquidity planning (treasury)

Indirect liquidity planning (controlling)

Features that appear in both reports are not explicitly assigned. For example, subdivision into operational/capex/financing and internal/external, or scenario planning and stress tests.

Conclusion

Direct and indirect liquidity planning pursue different goals and complement each other in their effect. While treasury actively manages short-term solvency and currency risks with direct planning, controlling provides a long-term perspective on the company's financial development with indirect planning. Modern treasury management systems are now virtually indispensable for efficiently managing the increasing complexity of multinational structures, multiple currencies, and rapidly changing cash flows. Companies that integrate both planning methods, support them with technology, and coordinate them regularly have robust liquidity management—both operationally and strategically.