The treasury function: Its role in protecting financial resources.

According to the Global Corporate Treasury Survey, treasury departments increasingly recognize the strategic nature of their role. The survey revealed that the majority of participants consider “managing liquidity risk and overseeing financial risk management” to be crucial priorities. Additionally, improving cash forecasting and streamlining operations are significant concerns. 

An automated, consolidated spend management platform helps treasury departments gain the visibility and control they need to build responsiveness for a turbulent economy. Let’s take a look at the interaction between the treasury function and spend management. 

What is the treasury function?

The treasury function is responsible for managing an organization’s financial resources and ensuring that they are used in a manner that maximizes value for the organization. This includes activities such as:

• Liquidity management to protect working capital.
• Overseeing investments.
• Managing financial risks, such as interest rate and foreign currency risks.
• Ensuring regulatory compliance.

When do companies need a treasury function?

A company may need a treasury team when they:

• Have a large amount of cash and liquidity that needs to be managed.
• Need to raise capital or manage debt.
• Have a significant amount of financial risks, such as interest rate or foreign currency risks.
• Have a significant amount of financial transactions and need to manage cash flows and liquidity in order to meet their obligations.
• Are experiencing rapid growth and need to manage the financing of that growth.
• Face regulatory or compliance requirements and need to implement processes and controls to ensure compliance.

In smaller companies, the main duties of the treasury function are typically fulfilled by someone in the finance department who fits them all in with their other responsibilities. A dedicated treasury role is typically resourced when the demands of cash management, risk management, and compliance overburden the finance team with other primary responsibilities. 

Benefits of the treasury function.

The treasury function plays a critical role in managing an organization’s financial resources and ensuring the stability and growth of the company. It provides valuable insights and advice to the company’s management team on financial matters, helping to support strategic decision-making.

In an uncertain economy, the treasury function plays an even more important role by ensuring resources are being used as efficiently and effectively as possible. Here are a few ways the treasury function can protect an organization in uncertain financial markets:

1. Cash Management: Treasury needs to closely monitor cash flows and ensure that there are sufficient funds available to meet the organization’s short-term obligations. Cash management strategies implemented by the treasury function could include short-term borrowing or delaying non-essential expenses.
2. Risk Management: Treasury must closely monitor financial risks, such as interest rate risk, currency risk, and credit risk. To reduce potential risks, treasury can implement hedging strategies, diversify investments, or reduce exposure to certain financial instruments.
3. Financing: Financing must be closely monitored. Treasury can take appropriate measures, such as seeking out new investors, to raise capital or refinance debt to respond to shifting priorities. 
4. Compliance: The treasury function should also be certain that the organization is in compliance with financial regulations and industry standards. Treasury must implement internal controls and procedures to detect and prevent fraud and create accurate and timely financial reporting.
5. Insurance: Coverages that protect the company from various risks such as property, casualty, and other types of insurance need to be evaluated and adjusted as needed.
6. Optimizing purchasing: The treasury function should also closely monitor the organization’s spending and take steps to reduce costs and improve efficiency. This can include implementing cost-saving measures, renegotiating contracts with suppliers, and identifying areas where resources can be reallocated.
7. Risk mitigation: Overall, corporate treasury plays a critical role in protecting an organization from financial risks by identifying and managing risks, ensuring compliance, and implementing controls to mitigate them. Treasury professionals are responsible for identifying, assessing, and managing financial risks such as interest rate risk, foreign exchange risk, credit risk, and liquidity risk. They use different techniques, such as hedging, insurance, and diversification, to mitigate these risks.

How does spend management help the treasury function?

With a consolidated spend management platform like Airbase, an organization can ensure that its financial resources are being used in the most efficient and effective manner possible. This can help treasury management in a number of ways:

1. Improving cash flow: By identifying areas where costs can be reduced, spend management can improve an organization’s cash flow. For example, on Airbase, duplicate spending is automatically flagged. Also, the ability to adjust corporate card limits on the fly makes it easy to respond quickly to budget cuts or market opportunities. 
2. Advance warning for large purchases: On Airbase, treasury can see requests for spend before a transaction is executed, giving them time to make adjustments for cash management. 
3. Increasing visibility: A good spend management platform provides real-time visibility into an organization’s spending patterns across all types of spend, which can help the treasury function to identify trends and areas where costs are rising. Because all non-payroll spend is consolidated on one platform — with an automated GL sync — financials are up to date and can be accessed by all relevant stakeholders at any time without time-consuming reconciliations or data transfers. 
4. Improved compliance: Spend management strengthens compliance by supporting a consistent and standard way of recording all data, and creating an easily accessed audit trail. Rule-based workflows ensure spending is compliant without any stress for employees. 
5. Increased efficiency: Automating accounting tasks such as data entry and amortization schedules saves time, which improves the efficiency of the treasury function. When cumbersome manual tasks like reconciliation are eliminated, the treasure department can focus on the bigger picture. 
6. Enhancing accuracy: Automated accounting systems help to improve the accuracy of financial data by reducing the risk of human error.
7. Streamlined reporting: The automated accounting of a spend management platform empowers the treasury function to easily generate financial reports and provide more accurate and timely information to stakeholders. Plus, when all spend is consolidated in one system, nobody has to perform the time-consuming task of bringing together information. 
8. Risk mitigation: A treasurer also helps protect the organization from the risk of defaulting by ensuring there are sufficient funds available to meet its short-term obligations. Effective spend management can help to manage financial risks by ensuring that resources are allocated to the most important areas and that spending is in line with the organization’s overall financial goals.

Treasury and risk management.

Let’s take a closer look at some of the risks that treasury helps manage. 

• Credit risk is the risk that a counterparty will default on a financial contract. Treasury may use credit default swaps and other financial derivatives to hedge credit risk. 
• Interest rate risk is the risk that changes in interest rates will adversely impact the value of an organization’s financial assets and liabilities. Treasury may use interest rate swaps and other financial derivatives to hedge interest rate risk.
• Liquidity risk is the risk that an organization will not be able to meet its financial obligations when they are due. Treasury may manage liquidity risk by maintaining adequate cash reserves and arranging short-term borrowing as needed. 
• Currency risk is the risk that changes in currency exchange rates will adversely impact the value of an organization’s financial assets and liabilities. Treasury may use currency swaps and other financial derivatives to hedge currency risk. 
• Market risk is the risk that changes in market conditions will adversely impact the value of an organization’s financial assets and liabilities. Treasury may use financial derivatives, such as options and futures, to hedge market risk.

FAQs on the treasury function.

A combination for improved efficiency.

The corporate treasury function plays a critical role in managing an organization’s financial resources and ensuring that they are used in a manner that maximizes value. By improving visibility, tightening control, and improving compliance, a spend management platform frees up time for treasury so they can focus on activities that truly help them help their companies control their own destiny. Find out how Airbase can help — book a demo now!