Treasury Management 101

83% of executives struggle with visibility and reliability of cash forecasts.

‘Treasury’ is a key support function inside of a company, if not the support function. Usually embedded inside the larger ‘Finance’ function, a successful Treasury practice is involved in the entire company's operation.

What is treasury management? It is the combined activities of accounting and finance to report, forecast, and improve cash balances.

At this core, treasury is built to:

1) anticipate cash shortages, 

2) invest cash surpluses, and 

3) manage cash disbursements.

One of the critical tasks of the function is to act as a flagging system. Because it has visibility of cash balances, Treasury can anticipate unplanned cash shortages, flag over-spend, and manage liquidity and insolvency risks. In most companies, the function oversees the business’ runway and decides when to raise money. 

Treasury can be compared to a control tower at an airport. It can see all the incoming and outgoing traffic [of cash]. And they can do so before everyone else. It can affect the incoming traffic (i.e., collecting faster) and the outgoing traffic (i.e., managing payment schedules). It can suggest when the runway is becoming shorter (negative cash flow), and when it’s becoming too -comfortably- long (time to invest).

A responsible Treasury function will also create a cash buffer of at least 3 months to absorb any emergencies, macro-economic shocks, or unforeseen liabilities. Having this discipline also creates peace of mind and affords the company risks that it wouldn’t be able to pursue otherwise.

Whether the function has a name or not inside the Finance department, it is an implicit task for CFOs around the world.

Having the right Treasury controls and procedures is like having control towers at an airport: you absolutely need them to take off.

If you have challenges managing cash inside your organization, please feel free to reach out to contact@summa.consulting to learn about the ways we can help you.