Treasury management keeps corporate cash funded and controlled

Treasury management is the corporate finance function that oversees cash, assets and liabilities so a company can meet obligations, fund operations and strategic plans, and manage financial risk. Its central operating concern is liquidity: having funds available when needed while managing operational balances and any excess cash within the company’s policies and plans.

The term can also describe a bank’s business-services package. That is narrower than the corporate function. A company’s treasury team manages liquidity, funding and risk; banks and software providers can supply payment services, reporting, credit facilities and technology that support that work.

Treasury management: the operating sequence

A workable treasury process follows the movement of money through the business. The sequence below is a practical framework, rather than a prescribed policy. Its detail and frequency depend on a company’s size, business model, geographic reach and risk profile.

1. Forecast receipts and payments. Treasury begins with expected cash inflows, including customer collections, and expected outflows, including payroll, supplier payments, capital spending and financing needs. Cash-flow forecasting supports cash-management planning. Capital Credit Union describes rolling forecasts as updates made daily, weekly or monthly, and also describes best-case, worst-case and most-likely scenarios.
2. Establish the cash position. The team considers expected flows, bank balances, committed payments and available credit to assess the resources available to meet obligations.
3. Fund and schedule near-term obligations. Treasury seeks to ensure payments can be made on time and cost-effectively. It can coordinate the timing of disbursements and maintain short-term credit access for working-capital needs.
4. Handle surplus cash within policy. Once projected needs and required reserves are covered, treasury can assess whether excess funds should remain available, be invested or be used to reduce debt. The Association for Financial Professionals identifies principal preservation, liquidity and return as priorities in managing investments for short- and long-term needs.
5. Monitor exposures and controls. The process includes identifying, measuring and mitigating financial, operational and regulatory risks. Capital Credit Union describes controls that may include dual authorization, user-access limits, secure logins and multi-factor authentication, depending on the company’s arrangements and its financial institution’s services.
6. Refresh the forecast and report exceptions. Actual collections and payments can be compared with the forecast. Material changes, such as a delayed receipt or an unexpected large payment, can affect funding, investment or payment decisions.

A simplified treasury-management example

Consider a hypothetical company at the beginning of a week. It has $1.2 million in available cash. Its forecast shows $500,000 of customer collections and $1.1 million of payroll, supplier and financing payments during the week.

• Opening cash: $1.2 million
• Expected receipts: +$500,000
• Expected payments: −$1.1 million
• Projected closing cash: $600,000

If the company’s internal liquidity requirement is $400,000, the initial forecast indicates $200,000 above that threshold. Treasury would still test the forecast’s reliability, timing and account-level availability before treating that amount as surplus. If a major receipt slips, the projected surplus could disappear; if receipts arrive earlier or payments are lower, more funds may be available. The purpose is to maintain reliable access to cash across the forecast period.

What sits inside the treasury remit

Cash management is a core component of treasury management, but it is not the whole discipline. Cash management concerns operational balances, collections, payments and liquidity. Treasury also addresses financing, investments, financial risk, technology and external financial relationships.

• Funding: maintaining access to short-term credit for working capital and to medium- or long-term debt and equity financing for assets and strategic flexibility, consistent with company policy.
• Risk: managing financial, operational and regulatory risks.
• Bank relationships: working with banks and other financial institutions, as well as credit agencies, customers and vendors, to support the use of financial assets, risk management, costs and compliance.
• Information and coordination: working with accounting, tax, procurement, HR and IT. Treasury sits at the end of the accounts-receivable process and the start of accounts payable, seeking visibility over collections and the ability to schedule disbursements efficiently.

Function, bank service and software: keep the layers separate

• Corporate treasury management: the in-house responsibility for liquidity, funding, investment, risk and financial relationships.
• Bank treasury services: products that can support daily operations, including ACH payments, wire transfers, remote deposit capture, collection services, account reporting, credit facilities and fraud controls. Banks may market this bundle as “treasury management.”
• Treasury management system: software used to gather and analyse financial information and automate relevant workflows. Kyriba, a software provider, says such systems can aggregate information from bank accounts, payments and investment portfolios, and may include cash forecasting, liquidity, risk and payment modules.

Neither a particular banking package nor a treasury management system defines the function. The appropriate operating model depends on scale, complexity, regulation, technology and risk-management needs. The Association for Financial Professionals says larger, more complex companies may centralize treasury to streamline operations and manage risk, while smaller companies may choose more decentralized arrangements for agility.

Frequently asked questions

What is the difference between cash management and treasury management?

Cash management covers operational cash balances, collections, payments and liquidity. Treasury management includes cash management but also covers financing, surplus-cash investment, financial risk, technology and relationships with banks and other stakeholders.

What does a corporate treasury team do each day?

Treasury reviews expected receipts and payments, available cash and credit, and upcoming obligations. It also coordinates with functions such as accounting, procurement, tax, HR and IT, monitors risks, and assesses how to handle surplus cash within company policy.

What is a treasury management system?

A treasury management system, or TMS, is software that supports treasury work by gathering and analysing financial information and automating selected workflows. According to software provider Kyriba, common modules can include cash management, cash forecasting, liquidity management, risk management and payment processing.

How does cash-flow forecasting support liquidity management?

Cash-flow forecasting estimates future inflows and outflows, helping treasury plan cash-management activity and assess whether cash and credit access can cover obligations. Forecasts can be updated on a rolling basis and may use alternative scenarios, according to Capital Credit Union.

Sources

• Treasury Management | Definition, Key Functions and Importance — www.financialprofessionals.org
• What Is a Treasury Management System? 8 Useful FAQs. - Kyriba — www.kyriba.com
• What Is Treasury Management? | NE WI - Capital Credit Union — www.capitalcu.com
• What Is Treasury Management and Why Does Your Business Need It? — www.falconnational.com