What Is Treasury Management and How It Works

It doesn’t matter how successful your business is on paper, if you run into cashflow problems due to bad liquidity management, that success will falter. Learn how to manage your business finances more effectively.

Businesses really can’t overestimate the importance of effective treasury management, and understanding how to optimize your finances will impact your ability to attain global growth and endure business challenges.

Treasury management: A short definition

Treasury management is good housekeeping for your money – in other words, it encompasses how you harness your business’s financial assets to ensure you have the cashflow and liquidity you need to operate, while optimizing the financial tools at your disposal. By exercising good cashflow control, you can manage business funds in a way that enables you to grow, innovate and fulfil company goals without unnecessary friction.

Why is treasury management important?

Every business needs cash to operate. You need to pay staff and suppliers, purchase raw materials or pay for services – money is the lubricant that keeps your operation moving. This takes careful management. Regardless of the assets on your balance sheet, if too high a percentage of them are unavailable, for example in the form of property or other fixed assets, you could face a cashflow crisis. Ensuring you have a good treasury management system in place means anticipating cash needs and making sure that you have the required funds to hand when you need them.

The difference between treasury management and cash management

Corporate treasury functions are more than just managing cash so there’s enough in the bank, though that’s part of it. However, treasury management extends to cover a full range of finance operations including:

• Cash management means forecasting the business’s cash requirements and managing liquid assets to ensure that needs can be met. At the same time, holding excess cash is an opportunity cost, and when it’s not required in the most liquid form treasury best practice is to invest excess cash or use it to service debt. This involves risk management and forecasting, and an awareness of financial, regulatory and operational challenges.
• Managing corporate debt and equity financing – along with cash, maintaining the right levels of debt and investment is an important element of your company’s financial operations. These need to be flexible, while remaining in line with an agreed debt policy.
• Implementing the appropriate financial tools to perform good treasury management – your treasury management system will enable you to collect financial data from across the company and analyze it. Forecasting is an important part of treasury management, and the right treasury tools will enhance your ability to achieve effective liquidity control.
• Collaborating in cash management across different business functions – communication with other parts of the business is essential to understanding their liquidity needs.
• Dealing with your bank and other business partners – your treasury management doesn’t happen in a vacuum. You need to deal effectively with your bank and other financial partners such as payment platforms and credit agencies, as well as businesses you pay and receive payment from. 

The benefits of good treasury management

When you employ treasury best practices, your entire business benefits and everything runs smoothly. Poor business treasury, on the other hand, can have a disastrous impact across the board. Here are some of the benefits of good treasury management:

• good liquidity for smoother business operations
• enhanced decision making capabilities from forecasts
• mitigating risk of trading shocks
• regulatory compliance
• better banking relationships
• contribution to profitability
• ability to make the most of investment opportunities as they arise
• better outlook for long-term growth

Challenges and risks

Treasury management isn’t without its challenges, both from within the business and due to outside factors. Risk management has become an essential element of the job, and the ongoing challenges include:

• The pressures of globalization. As your business expands beyond your borders, treasury management becomes more complex as it has to deal with rapid growth and the challenges of managing FX optimization and costs.
• Market volatility requires flexibility and quick responses from treasury managers to manage unexpected changes. Risk management strategy and hedging techniques are required tools as changes to the cost of funding and supply chain insecurity are presenting new challenges every day.
• Geo-political shocks can hit financial markets hard, moving the goal posts for treasury management in unprecedented ways.
• Financial security is under constant threat from cyber-attacks, hackers and scammers. Treasury management needs to stay one step ahead with advanced security technology and protocols. You should also develop a recovery strategy for deployment in the event that a security breach happens.
• Regulators and reporting require an accurate grasp of every financial aspect of your business.

How your payment processing can contribute to treasury management

Managing payment processing is an essential part of good cashflow management, and partnering with the right payment platform will ensure a smooth inflow of cash. A good ecommerce payment solution, such as Payoneer, enables payment processes to be automated and offers the ability to manage FX conversion and charges to be managed through the use of virtual local receiving accounts. With competitive fees and simplified processes, Payoneer can support treasury management for small businesses and entrepreneurs.

The benefits of using a smart payment platform:

• simplified payment processes
• security features designed to help protect business payment process
• tools to help manage FX conversions and potentially reduce related costs
• a convenient way to receive payments from customers in multiple markets
• more effective cash management with easy withdrawal of funds