What is treasury?
Have you ever asked yourself the question, “what is Treasury?”. Many people will think about pirates and big see ships that sank deep into the bottom of the ocean including their ‘treasure’. A mystery treasure map will lead the finder to a treasure worth a lot of money. In some way Treasury and Treasure have definitely similarities, it is about money and other valuables.
Find out what Treasury is……
Treasury or Treasury Management is the task to manage the firm’s liquidity and mitigate its financial and operational risk, with the goal to safeguard an organizations’ holdings. Let’s make this more specific. In each organization treasury tasks exist, regardless if the organization is big/small, profit/non-profit, nationally operating/ multinational. Although entrepreneurship is always bearing risk, this should be limited to a certain extent in order not to jeopardize the survival of the company. For each company this is different. For a company like Apple with a net profit margin > 20% losing 4% on its FX exposure has a much smaller impact on profitability, than for a WallMart with a net profit margin of 2-3%. In small organizations treasury is mostly done by the CFO or finance department. Bigger organizations have their own treasury departments, controlled by the CFO. In general, the bigger and more international the organization operates, the bigger and more complicated the tasks of treasury get.
3 main Treasury Categories of Tasks
Treasury management, can be divided in 3 main task categories.
- Cash & liquidity management (short term):
a. This is mostly the day-to-day operations. Make sure that payments that are due are being paid in time to the correct account.
b. Manage your bank accounts in an effective and efficient way
- Corporate finance (long term): How do you want to finance your company? What is the best mix for equity and debt, based on the long term scenarios for a company.
- Risk management (short & long term):
- Liquidity risk: the risk that you cannot pay your bills in time (salaries, suppliers)Market Risk (or price risk) is the risk that changes in market prices (e.g. foreign exchange and interest rates), cause losses to the business;
- Credit Risk is the risk that a counterparty default causes loss to the business;
- Operational Risk (cyber & security, internal fraud).
Although the basic tasks for treasury remain the same over time, the content of the tasks evolves over time. Due to external factors like technology, regulations or new financial products, some tasks are less time consuming nowadays then they were in the past.
The future treasurer
A treasurer is someone who manages and oversees the treasury side of financial management of an organization. Tasks like bank selection, reconciling bank statements and managing cash flow are typical for a treasurer.
Payments these days can be automatized to a high extent, a TMS (treasury management system) can help the treasurer. However risks in cyber fraud are increasing. Also increased regulations by banks and/or government take more time of the treasurer. In the past a treasurer only went to his own bank for financing, these days there are many other options for financing or reducing financial risks. It is the task fort the treasurer to keep up-to-date with developments, and to be the consultant for the organization on treasury related subjects.
TreasuryXL.com will help you with this by following the latest trends on all aspects of treasury.
Founder and Owner of at Bedrijfskostenexpert
Treasurer and Project Manager at Van Caem Klerks Group