When it comes to corporate roles, treasury is not one that gets a lot of attention. But it is this role and the department they manage that guides a company’s strategic use of excess liquidity—your cash on hand.
If anything, the importance of the treasury function has grown in this low-interest-rate environment we’ve had over the past decade. For large enterprises, treasury is part of the corporate structure, but for smaller companies, this important role often gets ignored. We wanted to take a look at the role of treasury because when businesses we work with are experiencing excess liquidity as many are these days, it is important to have someone paying attention to the cash in the corporate till and managing these short-term liquid assets.
So what would a treasurer do in your business? The corporate treasurer’s role is multi-faceted and incredibly important. Here is what the role should include:
- Cash management
- Investment and funding
- Financial liquidity and cash flow
- Risk management
Let’s take a closer look at each of these.
The role of the treasury to be able to manage cash–and other short-term assets to manage the firm’s liabilities – is not to be understated. The function may seem simple and straightforward, but for the world’s most successful firms, a lot of resources and intelligence are allocated for cash management.
The ability to transfer longer-term assets into short-term, manageable, and convertible assets such as cash is crucial to a company’s health. Transfer too much, and the company may lose out on profitable investments from bonds, savings returns, or direct business investments. Conversely, if the company does not have enough cash at its disposal, it could face penalties for not being able to meet short-term liabilities.
For multinational firms, the treasury function is responsible for moving cash through the system and across jurisdictions. This, in itself, requires a great deal of treasury intelligence, – being able to move the right sums around different units while factoring in the need to retain cash in a centralized system to factor for the unknown.
For the cash management function, the corporate treasury will work closely with the finance and accounting departments to ensure that cash flow is managed across all aspects of the enterprise.
Investments and funding
Beyond managing the day-to-day, a good treasury department will know how to invest wisely while making sure short-term liabilities are accounted for.
In this area, as always, the treasurer’s job is about risk management (more on that later). When it comes to investments, the treasury may look at the opportunities and decide that funds are better used elsewhere or required for the day-to-day running of current operations.
So part of the corporate treasury role is to seek out and assess opportunities for the best returns possible. Sound treasury intelligence and ongoing risk-assessment can provide a company with a strong position, leveraging cash on hand, and not letting it gather dust in a low or zero-interest account.
At any organization, the finance department and other corporate levels should regularly consult with treasury in order to assess the best values to be gained from different strategies. Here, the treasury department will use knowledge of different financial techniques and market intelligence to calculate and decide on the best course of action.
Financial Liquidity & Cash Flow
A treasury department’s ability to move funds fluidly—with ease, and at the discretion of the C-suite as business models and economic environments change—is widely seen as the lifeblood of large companies. With the right tools and partners, smaller companies could take advantage of this function as well. More and more, this work requires the use of a combination of software and human data analysis of the company’s short and long-term financial requirements to best manage liquidity and cash flow.
Everything we’ve been looking at so far has been in some measure about risk management. Assessing a company’s risk profile is a critical component in deciding which direction to move. When the C-suite has decided on the levels of exposure for different departments and aspects of the business, the treasury is tasked with ensuring those risk levels are attended to.
There are various risk management techniques the corporate treasury will utilize. For instance, in our article on excess cash, we laid out seven different categories we see larger corporations using to deploy excess reserves. We can assist in building these investments out as part of a cohesive financial plan. We want to educate and partner with successful business owners and entrepreneurs to help ensure your assets are being reviewed and optimized for your goals.
Digital Revolution and the Role of Treasury
Smaller companies don’t always have the treasurer function in their org charts, but with cash on hand, it is an important function to think about. Digital tools are making it easier to manage this function virtually while keeping the C-suite always informed with the accounts and numbers close, and the ultimate decision-making power in their hands. We utilize software that can aggregate you and your companies assets into one website that is updated daily.