Liquidity risk arises when there is not sufficient cash to cover payment obligations. This occurs when the company has debt repayments, vendor payments or overhead payments that are becoming due but the business is unable to generate enough cash inflows to cover these payments. The inability of the company to fund its due payments leads to liquidity risk. This may lead to default of payments and affect company’s credibility and business operations. Liquidity risk can be managed by measuring and monitoring cash inflows and cash outflows over a suitable period of time in future and pattern of cash inflows and outflows in the past. To manage it’s liquidity risk the company needs to ensure and maintain secure and liquid investments that are maturing on payment due dates, a cash buffer that may be readily used when needed or procure financing facilities that may be utilized to fund any forthcoming shortfalls. Further, the liquidity risk may be short-term or long term in nature. Short-term liquidity risk need to be managed by ensuring availability of short-term liquid assets and long-term liquidity risk need to be managed through long term capital structuring and ensuring access to long term capital at optimal costs.