Keep Calm and Segment Your Cash: Managing Liquidity in Uncertain Times

International trade and tariff policies have contributed to economic and market volatility. Periods of uncertainty make it difficult for businesses to plan ahead, including for critical tasks such as forecasting cash flows. 

According to the AFP’s 2025 Treasury Benchmarking Survey, over 60% of treasury professionals cite cash or liquidity forecasting as their most challenging task. Treasurers find themselves in the unenviable position of performing their most challenging responsibilities during a difficult time to do business.  

That’s why it’s important to understand the significance of cash segmentation, how various external factors can impact your liquidity strategy, and your options for optimizing liquidity. 

Regardless of the operating environment, two bedrock principles always apply: understanding the fundamentals of cash segmentation, and being aware of the investing and forecasting tools available to corporate treasury teams. The core principles of cash management are typically prioritized as preservation of principal, then liquidity, and a distant third is yield and rate of return. Cash segmentation is a best practice for achieving all three.  

It provides a framework for investing by segmenting liquidity balances into tiers: 

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  Operating 

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  Reserve 

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  Strategic. 

In periods of uncertainty, we find that many clients allocate more cash to the operating and reserve layers. Cash is king, so to speak, during periods of volatility when it’s too unstable to plan for long-term projects. 

Your priorities will help determine which of the available liquidity investments are most appropriate. Broadly speaking, these could include: 

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  Bank deposits, including interest-bearing accounts such as certificates of deposit (CDs) or money market accounts 

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  Fixed-income securities, such as government bonds and corporate debt 

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  Investment funds, such as money market mutual funds (MMMFs), or individual securities. 

Companies can choose to take a passive, buy-and-hold approach (internal), or an actively managed approach (via broker or investment manager) to making investments, depending on their available resources, expertise and priorities. But even here, your cash segmentation priorities dictate your decision. 

If you’re dealing with a relatively small amount of excess cash, for example, you may be able to manage your investments internally because the focus is on preserving operating and reserve liquidity. Conversely, if you’re holding a large percentage of long-term strategic reserves, it might make sense to engage an outside adviser who can maximize your investment over a two-to-three-year time frame.  

Monetary and fiscal policy, as well as domestic and geopolitical factors, are frequently the sources of economic and market uncertainty. But they can provide key context for helping to manage your liquidity through cash segmentation. 

As the Bank of Canada and the Federal Reserve consider their respective paths for monetary policy in the wake of the economic and market outlook, treasury teams may need to review their cash segmentation strategy. For example, if you have liquidity that you can segment for six to 12 months, some teams may consider locking more cash in at a relatively higher rate before the Fed begins cutting rates again. 

Scenario planning and stress-testing are among the most useful tools during periods of uncertainty, as they enable you to gain insight into how your company may perform under certain situations. Stress testing typically involves using best-case, medium-case, and worst-case scenarios to understand the impact to your liquidity. A tariffs-related example would be: 

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  Best case: What if the U.S. reciprocal tariffs on international imports are permanently rescinded?  

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  Medium case: What if tariffs are implemented in half the target markets in the short term? 

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  Worst case: What if no further trade deals are made and tariffs are fully implemented over an extended period?  

Another best practice is to conduct quarterly liquidity touchpoints to review updates to monetary policy or other factors that could impact your liquidity objectives.  

The most optimized treasury teams use automation, including artificial intelligence (AI), to help build their liquidity forecasts. Other teams may be looking to invest in third-party technology solutions to help with forecasting. But one of your best resources might be your commercial bank.  

BMO’s Online Banking for Business platform, for example, is powered by AI and includes cash flow forecasting and scenario planning tools using your existing data. Also note that while AI tools can help, your finance team and banking partner will still need to interpret the data to determine the appropriate liquidity strategy.  

Whatever decision you make should fit within your company’s investment policy guidelines. And if you don’t have an investment policy, now is the time to create one. I regularly share templates with clients to help them set up their policy guidelines that define the permitted investments by criteria such as maturity or credit rating. Your policy should be a living, breathing document that you review every 12 months—or sooner, given the current market dynamics. 

The bottom line: cash segmentation is a prerequisite for making all these decisions, whether its short- or long-term liquidity, or whether you manage your liquidity internally or externally. It can also help you stay calm on the job during challenging times.  

(Paul Dawkins, Director, Liquidity Optimization Team, BMO contributed to this article.)