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May 25, 2021
3 minute read

Treasury function in a modern finance world.

Written by Laura Slauson
Treasury function in a modern finance world

Finance teams in growing companies without a treasury department must still fit the treasury function into their other responsibilities in order to protect cash flow, mitigate risks, and reduce volatility. In particular, the rapid growth and frequent pivots of modern early-stage, VC-backed companies raise the stakes of a treasury function to protect liquidity so that cash flow doesn’t hold back growth. Broadly speaking, this function includes oversight of banking relationships, internal finance processes, and accounting systems, all with the end goal of optimizing working capital and deploying cash flows so a company’s funds are always able to support business activities.

However, VC-funded companies often start with plenty of cash in the bank, so they may be less attuned to the treasury goal of preserving working capital when they set up financial operations. Building AP and AR processes that support the treasury function is an important part of that advance planning. With the right tools and processes, AP and AR can optimize treasury functions and play a role in increasing revenue.

Decision-ready data, automation, and the finance function.

Cash flow forecasting is a central pillar of the treasury function, and relies heavily on accurate, up-to-date transaction data. With a full record of all receipt and disbursement activities in a single source of truth, the finance team can more easily play a treasury role in order to determine if more cash is needed, plan for investments, identify funding gaps, and much more.

But without quick, real-time access to data, decision-makers don’t have the accurate picture needed to make best use of working capital.

On the AP side, efficient, automated accounting workflows make payment data more accurate, and improve visibility for scheduling payments. Payments can be scheduled strategically as part of the treasury function. An automated sync to a company’s general ledger keeps it up to date, and automation protects against errors in bill payments or invoice processing, which can lead to further gaps in information. Plus, amending those errors creates more delays and often confusion, and that time could be spent focusing on ways to increase revenue.

The role of AP.

Most Accounts Payable departments manage significant cash flow volumes. Making payments with a treasury perspective aligns AP with the entire company’s cash flow strategy. When AP processes are set up with a treasury outlook, the AP department can:

  • Enhance the accuracy of cash flow forecasts
  • Improve liquidity
  • Strengthen a company’s bargaining power
  • Improve vendor relationships
  • Protect capital

Accounts Payable, for example, can strengthen a company’s position when invoices are processed on a timely basis, and decision makers have the visibility to set either longer or shorter payment terms, and choose the optimum payment method.

Effective controls in AP processes are essential to the risk-reduction element of the treasury function, including approvals and access to bank information and accounts.

Setting threshold limits can reduce the risk of fraud, without restricting the flow of money, as do controls that target possible duplicate payments and identify invalid invoices. When international payments are made from the same platform, foreign exchange risk is easier to measure and manage.

AP departments are often too time-strapped with necessary tasks, like closing the books and making sure employee expenses are compliant, to consider the impact. But with the right tools, it’s all part of the normal processing of payment. And, for AP teams who don’t have the right tools, the simple step of transitioning to a comprehensive spend management system will help you make a contribution to your company and play a role in the crucial treasury function.

Learn more about how we can help you make that contribution — contact Airbase for a demo.

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