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Treasury Management

What is Treasury Management?

Treasury Management is the planning, organization and controlling holding, funds and working capital of the enterprise. It aims to make the best possible use of the funds, maintain the firm’s liquidity, reduce overall cost of funds, and mitigate operational and financial risk.

Treasuries are those who undertake treasury management and whose role within the business is to be the custodians of money. They oversee the cash by observing 1) the amount held and 2) its liquidity. These two levers are determined by the size of the balance sheet and the relative stickiness, or liquidity, of assets and liabilities held. The treasurer’s management of this enables the organization’s basic fundamentals to operate smoothly: allowing teams to operate and conduct activities by ensuring that there is no cash on hand.

As well as enabling business-as-usual (BAU) activities, treasuries assist in the macro-financial direction of a company and oversee its execution-wide strategies. For example, if the board decides to buy another company, the treasury team will help to determine the fit of the company from a balance sheet perspective and find the cash (or issue stock) to purchase it.

Ultimately, treasury management exists to ensure that the business stays alive, saves money, and can respond quickly to change. This is done by proactively managing liquidity.

What are the Functions of Treasury Management?

  1. Cash Management: ensures that the organization has an effective collection and payment system in the organization.

  2. Liquidity Management: businesses must maintain an optimum level of liquidity to run smoothly and efficiently. To do this, cash flow analysis and working capital management act as the most important tool for treasury management to help the company achieve its strategic goals.

  3. Availability of fund in adequate quantity and at the same time: treasury managers must ensure that the organization has a sufficient quantity of funds available. This means that there should neither be more nor less to fulfil the day-to-day cash requirements for the smooth functioning of the organization. Time availability of funds also facilitates the firm’s operations.

  4. Deployment of funds in adequate quantity and at the right time: the treasury manager must watch the receipts of funds as well as their application to assure that the deployment of funds is in the right quantity. An example of such is the acquisition of fixed assets, the purchase of new materials and the payment of expenses.

  5. Optimum utilization of resources: treasury management also aims to ensure the effective use of the firm’s resources to reduce operating costs and prevent liquidity shortages.

  6. Risk management: manage financial risk to allow the company to meet its financial obligations. It tends to identify, measure, analyse and manage risk in order to mitigate losses. Thus, treasury management is liable for all types of risk that can influence the business entity.

Why is Treasury Management Important?

Treasury Management has a principal role in increasing return on equity and driving shareholder returns. This is done by optimizing liquidity and cost of capital by managing the balance sheets of a business and thus enabling its functions to run smoothly.

For more on Treasure Management Best Practices:

Treasury Management in the Modern World

What are Treasury Management Services

An overview of Treasury Management and Treasury Management Software

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