On the morning it went wrong, the balance was there. The board pack said so. The auditors had agreed the number. Somebody had reconciled it the night before.

By the close of business, none of that mattered.

A number and a question

Cash is a number. Liquidity is a question: can that number become the right currency, in the right place, on the right day?

Three conditions. Fail any one of them and the number is still true, and still no use to you.

Most people who hold money for a living have a good instinct for the number. Far fewer have had reason to test the question, because on an ordinary day the three conditions are met without anyone noticing.

That is what an ordinary day is.

Right currency

Take a firm holding a healthy balance in one currency, with an obligation falling due in another. The money is real and the statement is not lying. But between the balance and the obligation sits a conversion, and a conversion needs a counterparty willing to deal in the size you need, at the moment you need it, at a price you can live with.

Most of the time that is trivial. Some of the time it is not, and those are precisely the days on which the obligation was not going to wait.

Right place

Now take the same firm with the right currency, in an account that credits tomorrow. It is simply not where it needs to be today.

Money in the wrong account is a story about paperwork right up until the moment it becomes a story about default, and the distance between the two is one business day.

Right day

Finally, take the right currency in the right place, already spoken for.

A payment that lands first. A redemption a client was always going to make on the last Friday of the quarter. A bill everyone knew about and nobody had yet paid.

The balance on the screen is gross. The money you can actually use is net of everything with a prior claim on it, and the screen does not show that.

Treasury people know the distinction. The balance can be real and still be unusable. The awkward part is that the system still calls it cash.

Why this is your problem

If you hold balances on behalf of other people, the figure on your screen is a claim on money rather than money. That is not a criticism of the figure. It is a description of what a bank balance is.

The useful question is not how large the claim is, but what it takes to convert it, how fast, and under conditions you do not get to choose.

The first question is in the reporting pack. The second usually isn't.

Three questions worth asking

Ask your counterparty bank what happens to your balance if you need all of it, in a different currency, before lunch, on a day they were not expecting.

Not whether they can. What happens.

Ask your finance function how much of the number in the pack is already spoken for by month end, and how they know.

Ask both of them what the answer would have been on the worst day of the last five years.

None of these needs a model.

They need someone willing to ask them out loud.

The bottom line

The balance sheet can tell you what you hold.

It cannot tell you what you can use.