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Trapped Cash: How to Reveal True Liquidity in Treasury

Here is a scenario that illustrates a common treasury challenge. A company plans a $50 million strategic expansion based on $180 million in reported global cash. Once it digs deeper, it finds that only $35 million is truly accessible. The rest is trapped: locked by regulation, needed locally, or too costly to move. It is only a scenario, but it could easily be a true story.

Trapped cash is a recurring challenge for treasurers in multinational groups, especially those with subsidiaries in countries that control how money leaves, such as China.

On paper, your cash position looks healthy. When it comes time to act, much of it may be out of reach.

What Is Trapped Cash?

Trapped cash is money that shows up in your bank balances but cannot be moved where you need it, when you need it, without significant cost, delay or legal risk.

Two Categories

These come from regulation, tax or company law:

  • China: a company must set aside 10% of after tax profit in a statutory reserve until it reaches 50% of registered capital, and that reserve cannot be paid out as dividends. Banks also check the audit and the tax payment before they remit a dividend abroad.
  • Company law everywhere: dividends can only be paid out of distributable profits, usually once the annual accounts are approved. Cash earned this month may not be distributable until next year.
  • Withholding tax: dividends and interest paid abroad are often taxed at source, at rates that depend on the country and the tax treaty. India, for example, does not require central bank approval for a dividend to the parent, but the tax has to be withheld and the paperwork done first.
  • Regulated subsidiaries: banking, insurance or payment entities in the group must hold capital and liquidity under their own rules. That cash is not available to the rest of the group.
2. Operational Trapped Cash (Soft Barriers)

This cash could be moved, but not without cost or risk:

  • Minimum operating balances each entity needs to run day to day
  • Compensating balances or cash collateral required by banks
  • Foreign exchange costs and taxes on currency conversion. In Brazil, the IOF tax on foreign exchange is 0% for dividends paid to foreign shareholders, but other outbound transfers have been taxed, and the rates changed several times in 2025. Check the current rate before you plan a movement.
  • Timing: a dividend or intercompany loan often takes weeks of approvals, even when it is perfectly legal

Why It Matters

Misreading how much cash is available leads to poor decisions:

  • Expansion plans collapse because of an unexpected funding gap
  • M&A transactions stall or fall apart
  • The group draws on credit lines while cash sits idle elsewhere

The simplest fix: show two numbers

Every treasurer should report:

  1. Total Cash: what the banks report
  2. Available Cash: what you can actually use without penalties or delays

This one change avoids last minute surprises and improves decisions.

The Technology Enabled Solution

A Treasury Management System (TMS) connected to your banks pulls daily statements and centralises balances. If you tag each account with a restriction category, the TMS can then split every balance report into restricted and unrestricted cash automatically. The tagging is the part someone has to set up and keep current. The system will not work it out on its own.

If you don’t use a TMS, a manual setup still helps. Your balance report should break cash down into:

  • Immediately Available: can move today at normal cost
  • Available with Cost or Delay: can move, but with tax, FX cost or approvals
  • Operationally Needed: must stay locally to run the business
  • Legally Restricted: cannot move until a legal or tax condition is met

Monitor cash by region, currency and restriction type, and track both total and usable cash, with alerts when usable cash falls below what you need.

A Routine That Works

  • Daily: refresh dashboards with the categorised cash buckets
  • Weekly: review trends in trapped vs. usable cash
  • Monthly: report true liquidity to management and the board

Your 4 Step Action Plan

  1. Inventory all bank accounts and the restrictions that apply to each
  2. Calculate your true available cash baseline
  3. Implement a cash tracking system or dashboard (if a TMS is not available)
  4. Launch the monitoring routine and reporting

Cash you can’t access when you need it isn’t liquidity. It’s an illusion, and illusions have no place in board meetings. The smartest treasurers don’t just show cash balances. They show what is truly usable.

Ask yourself: what percentage of our reported cash could we actually deploy today? The answer might reshape your liquidity strategy, and your next major investment decision.

Sources

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