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    Treasury Functions


    Overview of Treasury Functions

    The general mission of the treasury department is to manage the liquidity of a business. This means that all current and projected cash inflows and outflows must be monitored to ensure that there is sufficient cash to fund company operations, as well as to ensure that excess cash is properly invested. While accomplishing this mission, the treasurer must engage in considerable prudence to ensure that existing assets are safeguarded through the use of safe forms of investment and hedging activities.

    Detail of Treasury Functions

    In order to accomplish its mission, the treasury department must engage in the following activities:

    • Cash forecasting. Compile information from around the company to create an ongoing cash forecast. This information may come from the accounting records, the budget, capital budget, board minutes (for dividend payments) and even the CEO (for expenditures related to acquisitions and divestitures).
    • Working capital monitoring. Review the corporate policies related to working capital, and model their impact on cash flows. For example, looser credit results in a larger investment in accounts receivable, which consumes cash.
    • Cash concentration. Create a system for funneling cash into a centralized investment account, from which cash can be most effectively invested. This may involve the use of notional pooling or cash sweeps.
    • Investments. Use the corporate investment policy for allocating excess cash to various types of investments, depending on their rates of return and how quickly they can be converted into cash.
    • Grant credit. Issue credit to customers, which involves management of the policy under which credit terms are granted.
    • Fund raising. Determine when additional cash is needed, and raise funds through the acquisition of debt, sale of stock, or changes in company policies that impact the amount of working capital required to run the business.
    • Risk management. Use various hedging and netting strategies to reduce risk related to changes in asset values, interest rates, and foreign currency holdings.
    • Credit rating agency relations. Keep any credit rating agencies informed of the company's financial results and condition, if these agencies are providing ratings on the company's marketable debt issuances.
    • Bank relations. Keep the company's bankers apprised of the company's financial condition and projections, as well as any forthcoming changes in its need for borrowed funds. The discussion may extend to the various services provided by the banks to the company, such as lockboxes, wire transfers, ACH payments, and so forth.
    • IT systems. The department maintains treasury workstations that provide it with information about cash holdings, projections, market conditions, and other information.
    • Reporting. The treasurer provides the senior management team with reports concerning market conditions, funding issues, returns on investment, cash-related risks, and similar topics.
    • Mergers and acquisitions. The department may advise on the company's acquisition activities, and may be called upon to integrate the treasury functions of an acquiree.

    In essence, treasury functions revolve around the monitoring of cash, the use of cash, and the ability to raise more cash. All other tasks of the department support these functions.