Treasury functions within a business is responsible for managing the company’s financial assets and liabilities. It encompasses a wide range of responsibilities, including cash management, liquidity planning, investment management, risk management, debt financing, and capital structure optimization. The treasury team is responsible for ensuring that the organisation has sufficient funds to meet its obligations while maximizing returns on surplus cash. In most businesses the treasury function is carried out by the financial manager or CFO. Many larger businesses tend to have a dedicated treasurer and treasury function supporting the CFO.

Cash and Liquidity Management

One of the primary objectives of the treasury function is to maintain adequate liquidity. This involves monitoring cash flows, forecasting future cash needs, and optimizing the timing of payments and receipts. By effectively managing cash and liquidity, the treasury function ensures that the organisation can meet its short-term obligations, such as paying suppliers and employees, while minimizing idle cash and maximizing interest income from surplus funds. Too many businesses manage cash and liquidity on a day-to-day or weekly basis, or only update their cash flow forecast once a month. This is wholly inadequate for proper planning purposes. It is also important that cash flow forecasting is based on accurate data from the various operating systems within the business. Continuous advancements in the automation and AI space have made this process a lot more effective and efficient. It is therefore well worth the treasury function continuously exploring new ways to automate their processes.

Risk Management

The treasury function plays a critical role in identifying, assessing, and managing financial risks faced by the organisation. This includes interest rate risk, foreign exchange risk, commodity price risk, credit risk, and operational risk. Treasury professionals use various risk management techniques, such as hedging strategies, derivatives, and insurance, to mitigate potential losses and protect the company’s financial position. By effectively managing risks, the treasury function safeguards the organisation against adverse market conditions and enhances financial stability. With the increasing complexity in financial instruments, it is critical that the business has adequate resources available, either internal or external in order to navigate the risk management function.

Investment Management

Optimizing the return on surplus cash is another key responsibility of the treasury function. It is the responsibility of treasury to analyse investment options, evaluate risk-return profiles, and make informed decisions regarding short-term and long-term investments. These investments can include money market instruments, government and corporate bonds, and other financial instruments. By deploying surplus funds wisely, the treasury function aims to generate additional income for the organisation while considering liquidity requirements and risk tolerance.

Debt Financing and Capital Structure Optimization

The treasury function is also involved in managing the company’s debt and optimizing its capital structure. This includes evaluating borrowing needs, assessing financing options, negotiating loan terms, and monitoring debt covenants. The objective is to strike a balance between debt and equity financing to minimize the cost of capital and maximize shareholder value. Additionally, the treasury function works closely with senior management and financial institutions to ensure compliance with regulatory requirements and maintaining a healthy credit rating. Most businesses will find this function difficult and cumbersome as many aspects are not performed on a regular basis. It would be wise therefore for the business to engage with external specialists to guide them through the process.

The treasury function plays a crucial role in maintaining financial stability and promoting strategic decision-making within organisation. By effectively managing cash and liquidity, mitigating risks, optimizing investments, and maintaining an optimal capital structure, the treasury team ensures that the organisation can meet its financial obligations, pursue growth opportunities, and enhance shareholder value. However, as businesses navigate an increasingly complex and volatile economic landscape, it is vital that financial decision makers recognise the limitations of their capacity, both in terms of time and skills. As one CEO said to his CFO in my presence: “With all due respect, many of these functions are beyond your capacity to perform at the optimal level. I need you to ensure we receive accurate and timely financial information and have the right internal controls in place. I also need to have you by my side in making strategic financial decisions. You would be wise to outsource certain elements of the treasury function where it makes sense to do so.”

wautreasury is an established outsourced treasury service provider and has the capacity to assist with each of these treasury functions.