5 best practices for effective treasury management in your business

treasury function best practices

Last modified on March 26th, 2024

An employee in an agrochemical company wired $80M to an account in the wrong country. By the time the wire transfer was reversed, the currency rates had changed and the company lost a substantial amount of cash in the process. Read on about the treasury function’s best practices to learn how to optimize and protect your company from mistakes and fraud.

Trustpair helps treasury teams improve payment security and collaboration while ensuring they remain compliant with the main United States financial regulations. Request a demo to learn more!

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Improve your financial visibility

The purpose of treasury management is to manage an organization’s financial resources, and the risks associated with it. Cash management takes a central place in this process.

Treasurers need to know at all times where their company stands financially, and if they’ll be able to meet their financial obligations — now and in the future. Cash flow forecasting is therefore an important part of their job within an organization.

Without cash management, it’s difficult to plan and make corporate finance decisions regarding investments, borrowing, or raising capital. A lack of cash flow visibility can also lead to stuck working capital. Treasury teams need to be able to plan for the future with accuracy.

Yet, according to a McKinsey survey, nearly 50% of the treasurers reported that their cash forecasting was less than 80% accurate.

This represents a huge risk for organizations! It means their finance team can’t manage effectively their capital, missing out on potential investments or having to borrow cash at higher rates from banks.

Therefore, the first treasury function best practices ensure your data is relevant and up-to-date. One of the ways to do that is to centralize your data into one hub.
Having one source of truth to use as a reference means it’ll be easier to get the latest information needed for strategic decision-making. While some treasurers still choose to use spreadsheets to do this, we recommend using an integrated treasury management software.

That’s helpful for your liquidity management, and cash forecasting, and also for streamlining your business processes.

 

Use automation in your treasury management

Automation is the key to unlocking your treasury management. While Excel spreadsheets have been here for what seems like forever, switching between various files and emails is error-prone and time-consuming for departments big and small. In today’s economy, the challenges treasury management faces make accuracy and efficiency a priority.

For organizations that are established internationally and need a different system for each, the process becomes quickly out of control and unmanageable. Add to this fluctuating exchange rates and changing compliance, and treasurers’ jobs become a nightmare.

The solution? Embracing the benefits of digital transformation and using integrated software services as part of your treasury management systems.

Automation can help you streamline your workflows into efficient, seamless experiences for all parties. Treasury Management Systems (or TMS) provide a centralized, always up-to-date platform that enhances collaboration between departments and countries.

These technology services often support various banking systems and help with managing your various accounts and companies — making them ideal for organizations managing operations across several businesses.

Treasury management software can also be used to:

  • Create real-time reports,
  • Display important KPIs on financial dashboards,
  • Plan for various scenarios,
  • Conduct sensitive analysis,
  • Monitor performance across corporate functions.

 

Monitor all your business risks

Treasury departments manage their company’s financial resources but also their risks, which is one of their biggest challenges. In an ever-changing world, closely and continuously monitoring your business risks is what will help you survive and thrive.

Each organization has financial risks inherent to its activities, such as:

  • Operational risks,
  • Interest rates change over bank credits,
  • Commodity price and market fluctuations,
  • Foreign exchange risks,
  • Corporate risk management,
  • Etc.

Treasury function best practices also include monitoring indirect, yet very real risks that could jeopardize your business, such as:

  • Supplier risks: ensuring you know who you’re dealing with, and that you are aware of the key risks of your procure-to-pay process.
  • Third-party fraud: wire transfer scams were the leading method of committing fraud in 2023. Fraudsters use a variety of techniques like impersonation and phishing to defraud your business, endangering both your funds and reputation.

But it’s not enough to know about your risks. After risk assessment comes risk management, which is a fundamental part of treasury functions.

 

Be proactive about your risks

Once your business risks are identified, it’s time to plan for the worst! While this doesn’t appear to be a fun activity, it’s a necessary one that ensures your organization keeps on thriving for years to come.

There are 5 steps to developing a protective risk mitigation strategy:

  1. Identify your critical activities: establish a map of your key activities to protect first — the ones that would create a significant negative impact on your company. Payments to suppliers are one of them, for example, if the contract terms change, or you fall victim to fraud.
  2. Assess their potential disruptions: next, evaluate the probability of something interrupting your critical activities, and what the exact consequences would be.
  3. Evaluate your current measures: take a moment to check what’s already in place to mitigate your risks and how effective they are.
  4. Update your contingency plan: based on the likelihood and the forecasted impact of the previously identified risks.
  5. Communicate your measures to all involved: ensure that all relevant parties are aware of the plan, including essential information, contact details, and specific instructions to follow.

Following these steps means you’ll be ready for any eventuality, and your company will be able to navigate any storm it faces.

 

Secure your financial data

Securing your financial data is the last (but not least) of treasury function best practices. 96% of businesses in the United States were targeted by at least one fraud attempt in 2023.

The development of Artificial Intelligence and automation has also benefited fraudsters and criminals of all sorts. It’s now easier than ever for fraudsters to penetrate your cyber defenses, either using direct attacks or clever social engineering techniques.

Vendor fraud, invoice fraud, CEO fraud… Third-party fraud has many faces, all with the potential to endanger your reputation and liquidity. In 2023:

  • The average loss amounts to $100,000 per fraud event,
  • 36% of US companies lost more than $1 million on average,
  • 25% of victims lost more than $5 million.

The good news is that Trustpair can help completely eradicate those risks! Our fraud prevention and detection software supports you by continuously checking your third-party bank account information to ensure no fraud happens.

We check your vendor credentials against international databases so you always know who you’re sending money to. We constantly monitor bank account numbers, company IDs, and other key data to make sure there aren’t suspicious changes or activity. All fraudulent operations and payments are blocked. Corporate cash is preserved and treasury teams can operate with peace of mind.

Our software integrates with the main procurement platforms and ERPs, providing a seamless and centralized experience. It also fosters collaboration between team members, increasing productivity and freeing up time for higher-value tasks.

We’ve helped 200+ companies worldwide to effectively protect themselves against third-party fraud.

 

Key Takeaways:

  • Today’s treasury best practices include integrating more automation to have more visibility and protection against business risks.
  • Anti-fraud software like Trustpair will help you eradicate the risk of third-party fraud while enhancing collaboration across teams.

FAQ

You can improve treasury by enhancing cash flow forecasting, optimizing your processes through automation, being aware and prepared in case of disruption, and securing your financial data.

The main role of the treasury function is cash flow management of your company now and in the future. Treasury management includes mitigating risks and making corporate treasury decisions to match the company’s finances with its long term strategic goals.

Our fraud prevention platform wipes out the fraud risk and gives more peace of mind to Treasury teams. We use cutting-edge technology to monitor vendor data (bank account number, company ID, etc) and make sure there isn’t any suspicious activity or payment. Company cash and corporate assets are safeguarded, which leaves treasury teams with more funds for a worthwhile investment.

We replace time-consuming manual processes and make teams more effective. Our best-in-class platform offers additional features like detailed analytics, real-time alerts in case of risky situations, and extensive customer support. It integrates directly with your existing technical systems, making it easy to use and to be onboarded.

Manage the risks related to corporate treasury.

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