Treasury management is the act of managing a company’s daily cash flows
and larger-scale decisions when it comes to finances. It can provide
governance over a company’s liquidity, establish and maintain credit lines,
optimize investment returns, and strategize the best use of funds. As a
company raises, earns, or uses cash, treasurers or senior financial officers
ensure that there is working capital to maintain operations and reduce
financial risks.
Key Functions and Objectives of Treasury Management
The treasury management department plays a crucial role in ensuring the
smooth financial operations of a company. Its primary functions and
objectives include:
1. Cash and Liquidity Management:
- Monitoring cash flows and projecting future cash requirements to ensure
sufficient liquidity for day-to-day operations.
- Implementing strategies to optimize liquidity, such as cash concentration
and pooling, to minimize idle funds and the risk of cash shortages. [1]
2. Risk Management:
- Identifying and mitigating financial risks, including interest rate
fluctuations, foreign exchange rate volatility, credit risks, and market risks.
- Developing and implementing risk management strategies, such as
hedging techniques, to minimize potential losses and protect the company’s
financial position. [1]
3. Capital Structure Management:
- Determining the optimal mix of debt and equity financing to support the
company’s financial goals.
- Evaluating the cost of capital, debt capacity, and the impact on the
company’s financial structure to make informed decisions regarding capital
raising activities. [1]
4. Investment Management:
- Making strategic investment decisions with surplus funds to generate
returns while effectively managing associated risks.
- Evaluating various investment opportunities, considering factors such as
risk appetite, liquidity needs, and regulatory requirements. [1]
5. Financial Reporting and Compliance:
- Ensuring accurate and timely financial reporting by maintaining proper
records of financial transactions and activities.
- Monitoring compliance with accounting standards and regulatory
requirements, including anti-money laundering (AML) measures and know-
your-customer (KYC) procedures.
