A small-town treasurer from Illinois stole nearly $53M to finance her competitive horse breeding business and lifestyle. It’s almost funny to read — until it happens to your company. Treasurers are key to increasing shareholder value and maximizing long-term financial well-being. Ensuring they don’t defraud your organization (voluntarily or not) is essential. Keep reading to learn the exact purpose of the treasury department and the central role it plays in organizations.
Trustpair helps treasury teams by securing payments, enhancing collaboration, and ensuring compliance with the main financial regulations in the United States. Request a demo to learn more!
What is Treasury Management?
The purpose of the treasury department is to manage the financial resources of an organization so it reaches its goals (strategic and operational). Treasurers manage both the money and the risk associated with their financial assets.
Their goal is to optimize their company’s financial situation so it can keep on thriving. This includes:
- Managing the day-to-day activities of the business.
- Steering the company’s long-term financial strategy.
In other words, treasury departments are here to:
- Ensure there is enough money for a company to function properly now (managing the working capital) and
- Optimize the use of its resources for the future.
For example, the United States Treasury Department’s job is to ensure the government’s assets are well managed so the country’s various services can keep running. They are in charge of coinage (United States Mint), borrowing to maintain the Federal Reserve, and enforcing federal finance and tax laws.
Treasury departments’s roles in businesses and non-profit organizations are somewhat similar: they have to manage the day-to-day and ensure the long-term continuity of their organization.
What are the different tasks of a treasury department?
Treasury departments have a large scope of actions. They need to ensure the immediate and future financial well-being of an organization. For this, several tasks require their attention:
Liquidity management
The first purpose of treasury departments is to manage their cash flow. They need to ensure there is enough working capital for the organization’s activities in:
- Operations: day-to-day running of the business,
- Financing: paying debts on time,
- Investing: giving profits to shareholders.
Treasury teams are here to ensure that your business meets its financial obligations in the best way possible. Concretely, it means analyzing and optimizing:
- Your cash inflow and outflows,
- Your accounts payable workflow,
- Your accounts receivables process,
- Your tax payments.
Treasury managers are the ones who always keep an eye on your various financial KPIs. They carefully monitor your company’s liquidity, developing cash account structures and creating in-depth reports about it.
They also have to deal with internal revenue services in the case of audits (in the United States).
Cash flow forecasting
Alongside cash management comes cash flow forecasting. The purpose of treasury departments is to manage today’s and tomorrow’s financial resources while reducing the inherent risks of running a business.
With cash flow forecasting, treasurers analyze the financial position your company is likely to be in a month, a quarter, or a year from now — that’s called scenario planning.
They have various graphs running with different case scenarios (ranging from optimal to disastrous) and with an adequate strategy for each likely situation. In other words: they’re here to make sure the numbers always look good, so your company can keep on thriving.
Treasury teams also use variance analyses in their cash flow forecasting. They check their projected numbers (for instance: sales or revenue) against the actual numbers.
The better the data, the better decisions they’ll be able to make, which is why treasury teams now use a variety of automated tools to assist them. This move towards digital transformation has made treasury jobs’ faster and more accurate. Read about all the benefits of digital transformation here.
Cash flow forecasting is important so top management knows where you’re likely to stand, and can adapt their strategy quickly depending on the direction the business is going (cash surplus or shortage).
Foreign exchange rate management
The purpose of the treasury department is also to manage the risks associated with your company’s financial resources. One of those risks is foreign exchange (FX) rate management.
Companies doing international business know well the risk dealing in various currencies represents. Fluctuations in currencies can have a huge beneficial or detrimental impact on a company’s financial position.
That’s truer the bigger the company is: a 2% value drop on a currency isn’t devastating for a 6-figure business, but can create real problems for an 8-figure one.
Treasurers’ role is to monitor foreign exchange rates and the political, social, environmental, and economic conditions that could lead to a sudden change in rates. Closely assessing market conditions is key to suggesting strategies to mitigate any potential financial risk.
Corporate finance
Another key function of treasury departments is corporate finance (also called corporate treasury). It aims to decide and implement a long-term investing and funding strategy for the business.
Treasurers have to evaluate various criteria (interest rates, risks, credit availability) to make strategic decisions as to how the company’s financial resources will be utilized.
They analyze their options to decide where it is best to allocate funding and decide on short-term and long-term strategic investments. Their goal is to create more value out of the financial resources your company already possesses.
For instance, if your company decides to open up an office in a new country, treasurers will do an in-depth analysis to decide what’s the better source of financing for this new operation:
- Borrowing from a bank,
- Using your cash flow,
- Raising more capital through investors.
Whatever decision treasurers make has to align with the strategic goals of your company. In other words, they’re making sure your company has enough fuel to get where it wants.
Risk assessment
Risk assessment and management are a big part of treasury departments: treasurers need to be aware of the challenges their business could encounter.
They need to ensure they have the info needed to make the best decisions in ever-changing environments.
They do so by conducting financial research on risks like:
- Market conditions: foreign exchange, interest rates, commodity prices, liquidity.
- Their clients: knowing who they’re doing business with exactly.
- Their suppliers: supplier risk management is a key part of the overall strategy to reduce risks.
The goal is to have an extensive and unbiased perspective of all the risks inherent to running a business that could impact its financial well-being.
Foreign assets control is something to be wary of when dealing with your vendors and clients. For compliance and reputational purposes, you need to identify their Ultimate Beneficial Owner. This way, you’ll avoid being mixed up with people or companies who have international sanctions against them.
With a clear picture of those risks, they can start creating strategies to mitigate them. For example, they can implement an anti-fraud strategy to protect their business against external and internal fraud risks.
They also have a role to play in internal controls and ensuring compliance with the various United States regulations. They can be led to work with crime enforcement networks or financial crimes enforcement agencies in the United States or at the federal government level.
It’s not unheard of for treasurers United States to work with the Internal Revenue Service IRS to identify some illegal activities funding and to fight against terrorism financial intelligence.
Payment management
Last but not least, the purpose of the treasury department is also to manage payment within an organization — especially for the ones present in several countries.
Treasurers’ tasks include creating a process to manage their various bank accounts and currencies and ensure accurate reporting respecting local regulations.
The purpose of a treasury management system (or Treasury Management Software) is to centralize and organize all the data. Using finance automation to streamline their workflow means everyone in the office — from secretary to manager — has more time for higher-value tasks.
Treasury departments also have to ensure that the payment processes their company uses for banking, invoicing, and payments are secure. Although using a TMS creates streamlined processes and reduces friction, it is not completely secure.
Integrating fraud detection and prevention software like Trustpair into your payment workflow is necessary to be fully protected against the risk of third-party fraud. We continuously audit the credentials of your suppliers to ensure you always pay your intended recipient.
Using Trustpair means you’re fully protected against the risk of third-party fraud. For treasurers, it means knowing your financial resources are safe against fraudsters — it’s one less risk to deal with!
Third-party fraud can have serious consequences for companies and employees: financial loss being only one of them. Lee-Ann Perkins, a treasurer with decades of experiences, shares her story of fraud in our latest video series!
Why is the treasury department at the heart of business operations?
Treasury departments are a foundational part of companies large and small. Their role of safeguarding and optimizing the financial resources of your business is essential for your company’s survival.
More than that, the department treasury supports the long-term strategic development of businesses by allowing them to:
- Find the best source of financing,
- Leverage their investment,
- Optimize their current resources,
- Plan for the long term.
In other words, treasurers are here to drive your company’s success. Alongside the Chief Financial Officer, the Chief Treasurer weighs in on the various risks (including fraud risks) associated with business and makes strategic decisions to foster growth. Their decisions directly impact its performance and profits.
Read more about the top challenges of treasury management in this article.
Benefits of effective treasury management include:
- Improved cash flow management and forecasting,
- Reduced operational and strategic risks,
- Increased profitability and efficiency,
- Enhanced decision-making,
- Upgraded and safer payment processes.
The cherry on the top? Make your treasury more secure by working with Trustpair. Our anti-fraud software protects your cash against third-party fraud.
In 2023, 96% of companies based in the United States were targeted by at least one fraud attempt. Anti-fraud software is key to minimizing those risks and safeguarding your financial resources to avoid any negative impact on your company.
Learn more about the future of treasury in our dedicated white paper!
Key Takeaways:
- The purpose of the treasury department is to optimize the financial resources of an organization while lowering the risks inherent to operating a business.
- Using anti-fraud software should be a part of your risk management strategy. Working with Trustpair means eradicating the risk of third-party fraud.
