The term “treasury” is often associated with government bodies, like the U.S. Treasury or the treasury of a hobby club. Yet, more and more often, businesses are building their own treasuries in the hopes of more efficiently and effectively managing their money.
Corporate treasuries are rising in popularity – but does your organization need one? Read on to find out everything you need to know about corporate treasury departments, their tools and their benefits.
What Does the Treasury Department Do?
A corporate treasury is a multifaceted department that maintains many responsibilities, but the primary goal of the treasury department is to manage a company’s financial resources to ensure that the organization can meet its business objectives. Some functions allocated to the corporate treasury include:
The treasury is tasked with tracking the liquidity of an organization so that business leaders have enough cash available to cover daily expenditures and upcoming projects.
To accomplish this, the treasury department must be aware of all incoming cash flows as well as all outgoing cash, and the treasury must be active in applying techniques to offset cash flows and reduce external borrowing.
A company’s cash is always at risk from external factors, and it is the treasury’s task to identify, measure and reduce the impact of those risks. When risks are not appropriately managed, companies will be compelled to pay more than anticipated, cutting their cash availability and limiting their options moving forward.
Thus, the treasury department should be wholly or partly responsible for tracking market and financial risks as well as operational risk, supply chain risk and other forms of exposure.
Forecasting and Modeling
In addition to recognizing a company’s current liquidity and risk, the treasury needs to be able to look ahead to future cash inflows and outflows.
The forecasting process can be challenging, as it requires treasury teams to collect data from different departments around an organization, and times of uncertainty can cause deviations in typical patterns, resulting in further complications.
Still, it is in the midst of unpredictable markets that this responsibility of the treasury department is most valuable.
In the Digital Age, a corporate treasury must rely on digital technology to be effective and competitive. Though spreadsheets remain a useful tool, treasury teams should consider adopting more robust treasury management software that can update in real time without the need for intense hands-on maintenance.
With advanced tech, the treasury can gain accurate visibility over all sorts of cash activities, improving their efficiency as well as their control.
Corporations are subject to a vast array of regulations, which protects them and their entire network from harm. In some organizations, understanding and complying with relevant regulations is an essential element of the corporate treasury’s role.
For example, treasuries must often document their financial activities in particular ways to reduce the possibility of fraud and facilitate investigation if necessary. It can also be useful for the treasury department to investigate and recognize regulations that apply to financial institutions or corporate departments they might interact with.
What Are the Benefits of a Corporate Treasury?
In smaller organizations, many of the responsibilities of a corporate treasury might be given to the accounting department. However, there are benefits to separating an organization’s financial departments and developing a distinct treasury with qualified treasury team members.
While accountants might be trained to observe transactions and build practical reports, financial professionals experience with treasury can provide a business with a strong and lucrative link to financial markets.
Instead of looking back at money already spent, as accountants do, a corporate treasury allows an organization to look forward to the projects they can fund with their available cash.
As a company grows, it needs a financial team dedicated to observing cash flow and understanding risks and regulations – in other words, it needs a treasury.
In recent years, the role of the corporate treasury has expanded, giving business leaders greater access to information that can provide them with more strategic insights. If your small business is struggling with growth, it might need a corporate treasury to compel it forward into the future.