Corporate Treasury Glossary: 30+ Cash & Liquidity Terms Every CFO Should now

Treasury and cash management conversations carry a lot of shorthand, DSCR, WACR, cash ladder, liquidity buffer, terms that get used freely once a finance team is fluent in them, but that create real friction for anyone newer to the function. Good surplus cash management depends on everyone in the conversation actually understanding the same terms the same way, which is exactly what this glossary is for.

Terms are grouped by category below, with a short definition for each and a link to a fuller explainer where one exists on the site.

Cash flow and liquidity terms

1. Cash flow forecast:  A projection of expected cash inflows and outflows over a defined period, used to anticipate shortfalls or surplus before they occur.

2. Liquidity:  How quickly an asset can be converted into cash without a significant loss in value. Cash itself is the most liquid asset by definition. We've covered this concept in depth here: What is liquidity in investing?

3. Cash ratio: Cash and cash equivalents divided by current liabilities, a quick measure of how much of a business's near-term obligations could be covered by cash alone.

4. Working capital: Current assets minus current liabilities, representing the capital tied up in day-to-day operations.

5. Cash conversion cycle: The time it takes for a business to convert its investments in inventory and receivables back into cash, calculated as inventory days plus receivable days minus payable days.

6. Float: The time gap between when a payment is initiated and when funds actually clear and become usable, during which the money is effectively unavailable to either party.

7. Liquidity buffer :  A defined minimum amount of cash a business keeps fully accessible to cover near-term obligations, distinct from surplus available for deployment.

8. DSO (Days Sales Outstanding): The average number of days it takes a business to collect payment after a sale, a key indicator of receivables efficiency.

9. DPO (Days Payable Outstanding): The average number of days a business takes to pay its own suppliers, the counterpart to DSO on the payables side.

Mutual fund investments are subject to market risk. Please read scheme-related documents carefully before investing. Past performance is not indicative of future returns.

Cash management and deployment terms

1. Idle cash: Surplus cash beyond a business's operating needs and safety buffer, sitting in a low-yield account with no near-term purpose. We've covered this in detail here: What is idle cash?

2. Cash sweep: An automated arrangement that moves balances above a set threshold into an interest-bearing instrument at the end of each day, sweeping them back when the account needs the funds.

3. Cash ladder (laddering):  A strategy that splits surplus across instruments with staggered maturities, so a portion is always coming due while the rest continues earning.

4. Liquid fund: A debt mutual fund investing in instruments maturing within 91 days, commonly used for short-term corporate surplus.

5. Overnight fund:  A debt mutual fund holding instruments that mature within a single day, the most conservative category for surplus needing near-instant access.

6. Money market fund: A debt fund category holding instruments with maturities up to one year, sitting between liquid funds and longer-duration options.

7. Treasury bill (T-bill): A short-term government security issued at a discount and redeemed at face value, with tenors of 91, 182, or 364 days.

8. Corporate bond fund: A debt fund investing primarily in bonds issued by companies, generally suited to surplus with a longer time horizon.

9. Arbitrage fund: A hybrid fund that generates returns by exploiting price differences between a stock's cash and futures market price, taxed at equity rates despite low volatility.

10. Fixed deposit (FD): A savings instrument offering a fixed interest rate for a fixed tenure, with an early-exit penalty if broken before maturity.

Risk and credit terms

1. Credit risk: The chance that a bond issuer or borrower fails to repay what it owes.

2. Interest rate risk: The chance that an instrument's value moves due to changes in prevailing interest rates, generally rising with the instrument's duration.

3. Counterparty risk: The risk associated with a specific institution, bank, or fund house holding a business's cash or investments, distinct from the risk of the underlying instrument itself.

4. Duration: A measure of how sensitive a debt instrument's price is to interest rate changes, roughly proportional to its time to maturity.

5. Credit rating: An assessment (such as AAA, AA, or lower) by an agency like CRISIL or ICRA indicating the likelihood an issuer will repay its debt in full and on time.

6. DSCR (Debt Service Coverage Ratio):  A financial ratio measuring an entity's ability to generate enough cash to cover its debt obligations, calculated by dividing net operating income by total debt service. A ratio above 1 indicates income exceeds debt payments; most lenders look for at least 1.20-1.25.

Treasury operations and governance terms

1. Treasury policy: A written document defining how a business manages cash, including buffer targets, approved instruments, approval thresholds, and review cadence.

2. Approval workflow: The defined process and authorized roles, governing who can approve deployment of surplus cash above certain amounts.

3. Reserve target: The minimum cash a business commits to keeping fully liquid, distinct from surplus available for investment.

4. AMFI: The Association of Mutual Funds in India, the industry body that regulates mutual fund categorization and standards.

5. Risk-o-meter: A SEBI-mandated visual tool rating mutual fund schemes across six risk levels, from low to very high.

6. NAV (Net Asset Value):  The per-unit value of a mutual fund, calculated daily based on the value of its underlying holdings.

7. Exit load: A fee charged when mutual fund units are redeemed before a specified minimum holding period.

8. Corporate KYC: The entity-level documentation, board resolutions, and authorized signatory details required to onboard a business as an investor.

9. Repo rate: The rate at which the RBI lends short-term funds to commercial banks, a key benchmark that influences short-term instrument yields.

10. WACR (Weighted Average Call Rate): The overnight interbank lending rate, a real-time indicator of system liquidity conditions.

Keeping this glossary handy

Treasury vocabulary tends to get picked up gradually, through meetings, board decks, and the occasional term nobody wants to admit they don't recognize. Having a single reference to check, rather than guessing from context or interrupting a conversation to ask, makes it easier for a finance team to stay aligned on what's actually being discussed. Bookmark this one and come back to it as new terms come up; the list will likely keep growing as your treasury practices mature.

FAQs

1. What does cash sweep mean?

A cash sweep is an automated banking arrangement that moves balances above a set threshold into an interest-bearing instrument at the end of each day, then sweeps them back when the account needs the funds.

2. What is DSCR (debt service coverage ratio)?

DSCR measures a business's ability to cover its debt payments from operating income, calculated as net operating income divided by total debt service. A ratio above 1 means income exceeds debt obligations.

3. What is float in treasury management?

Float is the time gap between when a payment is initiated and when funds actually clear and become usable, a period during which the money is effectively unavailable to either party.

4. What is a liquidity buffer?

A liquidity buffer is the minimum cash a business commits to keeping fully accessible to cover near-term obligations, kept separate from surplus available for deployment.

5. What does idle cash mean in finance?

Idle cash refers to surplus cash beyond a business's operating needs and safety buffer, sitting in a low-yield account with no near-term purpose, rather than being deployed into a return-generating instrument.