Recently, I came across a scenario that illustrates a common treasury challenge: a company planned a $50 million strategic expansion based on $180 million in reported global cash. But once they dug deeper, they realized only $35 million was truly accessible. The rest was trapped—locked by regulations, operational constraints, or costly to move. This is only a scenario, but could be a true story.
Because trapped cash it’s a recurring challenge for treasurers worldwide. Many multinational corporations have subsidiaries in jurisdictions with capital movement restrictions, including Brazil, China, and India.
On paper, your cash position looks healthy. But when it comes time to act, much of it may be inaccessible.
What Is Trapped Cash?
Trapped cash refers to funds that appear in account statements but are restricted or impractical to move when needed. JP Morgan estimates that 25–40% of S&P 500 non-financial companies’ cash is trapped overseas—potentially between $400 billion and $1 trillion. (Source: link here)
There Are Two Key Categories:
1. Legal Trapped Cash (Hard Barriers)
These are immovable due to regulatory or contractual limitations:
- China: Foreign exchange controls and SAFE approval (can take 6–12 months)
- Brazil: 6.38% IOF tax on outbound transfers
- EU: Basel III capital requirements for financial services entities
- India: Reserve Bank of India approval for overseas transfers
2. Operational Trapped Cash (Soft Barriers)
These funds could be moved, but at high cost or risk:
- Minimum operating balances
- Compensating balances required by banks
- Transfer fees of 3–5% in emerging markets
- Tax liabilities up to 30% for cross-border movements
Why It Matters
Misinterpreting cash availability leads to poor decisions:
- Expansion plans collapse due to unexpected financing gaps
- M&A transactions stall or fall apart
- Emergency loans become necessary despite seemingly strong liquidity
The example of Toys R Us, who filed for bankruptcy in 2017, with cash flow misalignment cited as a key contributing factor, is highlighting how cash on paper doesn’t always translate to liquidity (Source: link here).
The simplest fix: show two numbers
Every treasurer should report:
- Total Cash – What the banks report
- Available Cash – What you can actually use without penalties or delays
This clarity avoids last-minute crises and improves decision-making.
The Technology-Enabled Solution
Modern treasury tools make it easy to categorize and monitor cash. A Treasury Management System (TMS) connects directly with your banks, pulls daily statements, centralizes balances, and automatically categorizes cash as restricted or unrestricted.
If you don’t use a TMS, a manual setup still helps. Your balance report should break down:
- Immediately Available (same day)
- Available with Cost (2–5% fees)
- Operational Trapped (needed locally)
- Legal Trapped (legally restricted)
Every treasury team should monitor cash by region, currency, and restriction type, and track both total and usable cash—with alerts for liquidity or compliance risks.
Accenture reports freeing up 20% of its operational liquidity by implementing these practices and using cash categorization technology. (Source: link here)
A Weekly Routine That Works
- Daily: Auto-refresh dashboards with categorized cash buckets
- Weekly: Analyze trends in trapped vs. usable cash
- Monthly: Report true liquidity metrics to management and the board
Your 4-Step Action Plan
- Inventory all global bank accounts and related restrictions
- Calculate your true available cash baseline
- Implement a cash tracking system or dashboard (if TMS is unavailable)
- Launch monitoring routines 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’s truly usable.
Ask yourself: What percentage of our reported cash is actually deployable today? Your answer might reshape your liquidity strategy—and your next major investment decision.
