The Role of Treasury in Corporate Strategy

Treasury management involves daily operations like invoicing, banking, investing, risk evaluation, investment, and cash flow prediction. It is a core part of every corporation, benefiting businesses by making operations more effective and enhancing the organisation's overall financial health.

FREMONT, CA: Treasury management is the strategic control and oversight of a corporation's financial resources to achieve its operational and long-term objectives. It encompasses various responsibilities, including funding, risk management, working capital management, trade finance, cash management, and investment management.

Effective treasury management is essential for organisations as it enables them to manage financial risks and optimise their financial resources. It ensures the organisation has sufficient funds to invest in long-term growth opportunities while maintaining enough liquidity to meet short-term obligations. Treasury functions are also responsible for mitigating and managing risks such as interest rate fluctuations, foreign exchange exposure, liquidity challenges, and risks tied to strategic investments.

Functions of Advanced Treasury Management

The advanced treasury management function is tasked with planning, organising, and overseeing an organisation's financial resources. Its primary goal is to ensure that the organisation has surplus funds to maximise investment returns, meet both long-term and short-term obligations, and minimise the cost of financing.

The treasury department performs several essential functions, including managing financial risks, liquidity, and cash flow predictions. A vital responsibility of the treasurer is to continuously monitor and mitigate financial risks, recognising that a company’s exposure to risk is influenced by fluctuating internal and external factors. Effective risk management is vital in avoiding liquidity issues. Liquidity management, another critical function, involves analysing cash inflows and outflows to ensure the company can meet its short- and long-term financial obligations. Additionally, accurate cash flow forecasting is crucial. This process involves comparing actual financial results against forecasts and running scenario analyses to identify potential future cash surpluses or deficits. The treasury department enables informed and timely strategic decisions by effectively managing these functions.

Various Forms of Advanced Treasury Management Services

Banks often offer robust treasury management solutions for organisations operating in a single country with one banking partner. These services include cash flow forecasting, accounts receivable automation, and optimising account utilisation. However, corporate treasury services can be invaluable for companies with more complex structures—managing multiple banks and entities across various countries. Firms like Touchstone, Deloitte, PWC, KPMG, and others provide consultancy services in treasury reporting, governance, cash monitoring, risk management, and system administration, offering tailored strategies to optimise financial operations.

Advanced treasury management systems (TMS) are often the solution for larger organisations with internal finance or treasury teams. As cash flows, banking relationships, and financial systems grow increasingly complex, these platforms centralise and streamline data, providing a cohesive view of all treasury activities. Many TMS options are available on the market, designed to handle the unique demands of multi-bank, multi-entity environments.

To determine the necessity of treasury administration, assess the organisation’s financial health by reviewing its current economic status, including daily cash flow metrics and balance sheets. A pattern of negative cash flow or significant surplus payables may indicate insufficient profitability for daily operations, highlighting the need for a treasury administration system. Next, evaluate the organisation’s financial processes by examining existing payment methods. A considerable volume of pending payments may signal inefficiencies that treasury administration could streamline, ultimately enhancing payment collection methods.

A thorough audit should also be conducted to identify critical operations missing from the current financial management system. For instance, a small business may need to pay more attention to its profits due to the absence of necessary reporting tools. Implementing a treasury management (TM) system could mitigate discrepancies in financial reporting and reveal additional opportunities for effective cash management. Finally, re-examine the organisation’s existing financial risks. Managing multiple financial accounts can be challenging, and overlooking potential risks could hinder the organisation’s ability to meet essential obligations, such as taxes and operational expenses. By adopting treasury control, the organisation can improve its receivables, investments, and cash management, effectively addressing associated risks.