Cash Management and the Role in Treasury

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Cash management is arguably the most important treasury management discipline. For many treasurers, this doesn’t even merit an extra mention. However, cash management is a complex subject that can potentially make or break a company; it does deserve a more detailed examination. What is cash management and how can I find the optimum setup for my business?

Cash management refers to the active management of a company’s or a group’s short-term resources to sustain its ongoing activities, mobilize funds where needed and optimize liquidity. Most importantly, this involves the efficient use of current assets and liabilities, systematic planning, monitoring and managing collections, disbursements and account balances, as well as the collection and management of information needed to use available funds most effectively.

Further reading: Defining 6 Core Cash Management Challenges and Solutions

Everyday cash management responsibilities

What exactly does this mean for a treasurer? It is up to him or her to translate the requirements just listed into daily workflows in the specific business. We can broadly identify the following areas of responsibility:

Short-term liquidity

Treasurers ensure that a business maintains enough liquidity to meet short-term financial obligations at any time. There must be sufficient credit/credit lines available, and surplus funds must be invested in a way that allows a treasurer to quickly and easily convert the investment into liquid funds.

Cash flows and cash positioning

Moreover, treasurers need to monitor and manage daily cash flows: which payments have been received or disbursed? Which payments and transfers do I need to initiate? Who has a cash deficit that needs to be addressed? This includes the monitoring of group-wide account balances that need to be collated to determine the cash position. In addition, planned and actual cash flows need to be reconciled and planned cash flows deleted or moved into the future if need be.

Managing surplus funds

Another treasury responsibility is the optimization of liquid funds, in particular, surplus cash. Money needs to be invested or distributed in a way that makes for an optimum financial and organizational setup. Nowadays, this also involves keeping an eye on counterparty risk: liquidity should not be concentrated at one bank but be more diversified to be able to compensate for a potential inability to pay/insolvency.

Procuring financing

Another important aspect of cash management is the procurement of cost-efficient financing. The treasurer needs to ensure sufficient borrowing capacity (both short and long term) to be in a position to arrange for timely and affordable financing if it is not possible to move funds within the group (e.g. by means of cash pooling). Generally speaking, internal financing is (almost) always preferable to external financing. Treasurers have the responsibility of identifying cash needs, making funds available and allowing for a certain buffer.

Gathering information

What information does a treasurer need to meet all these demands? Appropriate data is crucial here. A treasurer needs to gather the information they need, and the data needs to be both accurate and available in a timely manner. This covers both internal and external sources of information.

Data optimization and efficient distribution of work: collaboration and cash management

What does that mean for the overall group? The treasury department must be on top of the group-wide cash situation to meet their cash management responsibilities in the best possible way. Moreover, the treasury needs to be aware of the cash availability in each and every group entity.

Depending on how centralized a group is or how autonomous the group entities, there are various ways of going about this. For example, if the local teams are solely responsible for their own accounts, then reporting is a key information interface. If not, then determining the cash position involves monitoring various banking tools for the treasury team. In both cases, this is a tedious and time-consuming process: the treasurer needs to work their way through a number of very different portals or wait until the local teams have reported their account balances and transaction data, often by email. This data then needs to be converged. But we’re dealing with a very time-sensitive process! So how could it be optimized?

One sole platform for everyone: accuracy and visibility

Using a treasury management system is the first step to more visibility and workflow efficiency. The second and even more important step, however, is using a system that integrates both local teams and central treasury for a collaborative approach. Nothing short of this will enable treasurers to leave behind the tedious collation of data from countless sources. Account balances, cash flows and, transaction data are entered directly in the system. Businesses are left with only one source of information, and data becomes available in real time. This creates greater visibility and improves accuracy.

Knowledge directly from the source: optimized distribution of work

How well you can perform cash management crucially depends on the information you have. Account statements are key here, as they not only show the status quo but also allow treasurers to make evaluations at any time. Cash management specifically targets the short-term picture, and this means that cash flows can be planned relatively well. Invoices have been entered in the system and HR or tax payments are fixed.

One of the main aspects that sets a load balanced treasury apart is the fact that the transfer of information becomes redundant. The treasury department no longer has an obligation to request and collect the information. Conversely, the local teams are required to make their data available directly in the system. Treasury can profit from reliable data from one single source, and the local teams benefit from central and structured reporting workflows. At the same time, automated data import enables teams to directly receive data (account statements for example via SWIFT) and reduce manual processes.

Strategic planning and decision-making

Treasury can make decisions and plan strategically on the basis of centrally available data. Where is my cash? What should I be doing with my money? Who needs financing? How can I optimize interest? Where should I opt for a payout or where do I need a credit facility? Where is internal financing needed, where external? These and other crucial questions have one both simple and reliable answer: A company-wide collaborative approach.


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