What Is Treasury Management?
Treasury management is the process of overseeing a company's financial resources (including cash, assets and liabilities) to achieve the company’s strategic objectives.
Treasury management focuses on optimizing the use of monetary assets, managing daily liquidity and risk, and ensuring sufficient cash reserves to sustain ongoing operations. By guaranteeing fund availability, treasury management enables the execution of strategic initiatives aimed at achieving the organization's goals.
PART 1
Why Treasury Management Is Important
No matter how successful an organization is, it has a finite amount of liquid assets on hand at any given period of time. Treasury management helps an organization achieve its business objectives and strategy through effective and efficient management of the organization’s cash, assets and liabilities. It ensures that the organization has the necessary funds to meet operational needs, invest in growth opportunities and mitigate financial risks.
PART 2
Key Functions of Treasury Management
There are five key functions of treasury management:
- Cash management.
- Maintaining access to medium- and long-term debt and equity financing.
- Selecting, implementing and managing technology solutions.
- Effective collaboration with other departments and business units.
- Management of relationships with external stakeholders.
Cash Management
Treasury professionals use cash flow forecasting to assist with planning cash management activities. The core activities of cash management include:
Maintaining liquidity to ensure the organization can meet its current and future financial obligations on time and in the most cost-effective manner.
Optimizing cash resources through the use of policies, procedures and strategies to manage operational cash balances, ensuring adequate liquidity, and investing excess cash to protect principal, generate interest income or pay down debt.
Managing risk by identifying, measuring, analyzing and mitigating organizational risks, including financial, regulatory and operational.
Maintaining short-term credit access at minimal cost, financing working capital and capital investments, and adjusting financing as needed.
Managing investments by investing excess funds for short- and long-term needs, prioritizing principal preservation, liquidity and overall return.
Maintaining access to medium- and long-term debt and equity financing
The goal of maintaining access to medium- and long-term debt and equity financing is to support asset expansion and existing assets, ensuring financial flexibility for strategic investments as opportunities arise — in accordance with a board-approved debt policy.
Selecting, implementing and managing technology solutions
Treasury professionals are responsible for selecting, implementing and managing technology solutions, such as a treasury management system, with the goal of gathering and analyzing financial information. When done well, treasury will be able to improve cash visibility, achieve straight-through processing and advance operational efficiencies.
Effective collaboration with other departments and business units
Effective collaboration with other departments and business units is critical to the successful coordination of functions, ensuring efficient utilization of cash.
Management of relationships with external stakeholders
External stakeholders include the organization’s banking partners, other financial institutions, credit agencies, customers and vendors. Managing these relationships is crucial for optimizing the use of financial assets while mitigating risks and expenses, as well as for ensuring compliance with relevant regulations.
PART 3
Role of Treasury Management Within an Organization
Treasury is one component of the financial management function, which also includes accounting, tax, investor relations and FP&A. Treasury manages cash at the end of the A/R process, at the start of the A/P process and at any point in between, serving as the hub of the organization's financial supply chain.
The core objective of treasury is to support business strategy by funding revenue generation, maintaining cost-effectiveness and ensuring compliance with regulations. As a result, treasury seeks visibility and control over incoming payments on the A/R side to efficiently manage cash collection, and on the A/P side, it aims to schedule disbursements to optimize cash usage.
Collaboration and communication with a number of internal departments, such as procurement, HR, tax, accounting and IT, among others, is vital to treasury’s ability to gather and share information. Because these departments wield influence over treasury management, treasury should frequently interact with these departments to ensure alignment with the treasury function’s objectives.
PART 4
Organizational Structure of Treasury
The choice of organizational structure for a treasury function depends on factors such as the company's size, complexity, business model, strategic objectives, regulatory environment, cost considerations, technological capabilities and risk management needs.
Larger and more complex organizations may opt for centralized structures to streamline operations and manage risk, while smaller companies might prefer decentralized models for increased agility. Strategic alignment, regulatory compliance and cost-effectiveness are critical considerations; flexibility is also essential for adapting to evolving business needs and environments.
Cost center vs. profit center
Treasury operations can be structured either as a cost center or a profit center. Cost centers are more common as the treasury function is typically viewed as support rather than revenue-generating. However, this approach may lead to a focus on minimizing costs rather than recognizing the value provided by treasury activities, potentially resulting in challenges in securing adequate resources.
Alternatively, organizing treasury as a profit center is suitable for companies heavily involved in global finance, trade or risk management. In this model, treasury is expected to generate income from trading or hedging/investment activities. The potential downside is the risk associated with the pressure to produce profits from these activities.
Centralized vs. decentralized treasury
Companies with multiple legal entities, geographically dispersed sales offices or limited personnel often centralize treasury functions at the headquarters, which offers the benefits of tighter control, economies of scale and reduced operating costs. Multinational corporations may particularly gain from tax advantages associated with centralized treasuries; however, this approach can diminish the autonomy of local subsidiaries.
Decentralized treasury structures are tailored for companies with autonomous subsidiaries or diverse operational entities, capitalizing on the local personnel's familiarity with regional business practices and regulations. In this setup, field personnel assume responsibility for certain daily treasury functions, yet this decentralized approach often results in redundant efforts and resource allocation across units. Furthermore, decentralized or foreign offices may encounter amplified compliance burdens stemming from span-of-control challenges and the heightened necessity for coordination.
Shared services center (SSC) and global business services (GBS) group
An SSC is a department within a multiunit organization that provides specialized services to multiple business units, often focusing on areas such as IT, HR or accounts payable. By consolidating these services, the SSC can reduce costs, standardize processes, improve service quality and timeliness, enhance strategic flexibility and strengthen internal controls. Some SSCs also manage daily treasury transactions. They can operate domestically or internationally, with the choice of location impacting tax considerations, especially if managing intellectual property rights, royalty payments or intercompany loans, due to significantly varying tax treatments and incentives.
SSC costs are typically allocated to operating units through transfer pricing methods, and service delivery is governed by service-level agreements detailing the provision of services. In certain instances, the SSC may be outsourced to an external third party for management.
Some companies create a global business services (GBS) group — also known as centers of excellence — to offer support to multiple business units. Unlike SSCs, GBS groups not only provide various services but also include business advisory functions, such as continuous improvement or internal consulting, to enhance operational efficiency across business units.
In-house bank
An in-house bank (IHB) offers banking services to group entities within the same organization. By facilitating transactions within the organization — rather than with external banks — treasury is able to manage liquidity and risk more efficiently. While the structure varies, central treasury usually operates as the IHB or establishes a dedicated entity for this purpose.
IHBs may handle core treasury payments or have broader functions, including A/R and A/P processing. Traditionally beneficial for complex multinational organizations due to implementation costs, technological advancements such as virtual bank accounts
are expanding the adoption of in-house banks across a broader range of organizations.
PART 5
The Difference Between Cash Management and Treasury Management
The terms treasury management and cash management are often used synonymously but are actually quite different. Treasury management covers all aspects involved in managing an entity’s financial assets (the treasury), while cash management is a subset of treasury management that focuses primarily on the day-to-day management of the entity’s cash flow and liquidity.
Cash management typically includes collections, disbursements, banking, and short-term borrowing and investment. Treasury management goes beyond simple cash management to deal with longer-term borrowing and investing, capital management, and operational, financial and reputational risk.
That said, both treasury management and cash management ultimately have the same objective: to maximize the enterprise’s liquidity while minimizing cost and managing risk within the overall framework of the firm’s strategic plan.
PART 6
Take the Next Step in Your Treasury Career
Get a better understanding of jobs within the treasury function by exploring treasury job descriptions, ranging from the entry-level analyst position to treasurer. Just starting out in treasury? Learn about the top five tasks of a treasury analyst.
Become a Certified Treasury Professional
The Certified Treasury Professional (CTP) designation is recognized as the leading credential in corporate treasury worldwide. Based on globally recognized standards of practice, concepts and theories in treasury management, the CTP examination tests the knowledge and skills required to effectively execute critical functions related to corporate liquidity, capital and risk management.
Demonstrate your commitment and expertise and earn the CTP credential.