Treasury management may seem like a complex process. When executed well, it can help companies navigate economic crosswinds. This post provides an overview of corporate treasury management and why it matters for growth organizations. At a basic level, treasury management means leveraging a business’s financial resources to meet critical short and long-term goals. It balances the following:
Selecting investment vehicles for reserve capital and other liquid assets.
Maximizing liquidity by tracking cash flow and conversion cycles.
Monitoring internal and external risks.
Checking that you are meeting your financial obligations.
Meeting legal and regulatory requirements.
Why is treasury management critical?
Ultimately, treasury management functions to insulate your cash reserves. High inflation rates can put businesses at risk of not having enough cash on hand to meet liabilities like vendor payments. The result could include having essential services suspended or facing non-sufficient funds fees for overdrawn accounts. On the other hand, if a business doesn’t earmark enough capital for high-yield treasury accounts and other investments, it may miss out on critical opportunities to fuel growth.
Considerations for successful treasury management
Security. Invested assets must be protected from internal and external risks. They should be custodied with trusted parties and invested in high-grade creditworthy assets, like government securities.
Liquidity. Reserve capital means little if you can’t get to it when you need it most. Business teams need to know they can quickly transfer funds into and out of any treasury account and use them to cover immediate and unexpected costs.
Yield. Finance teams need to know interest rates are working for them and helping them scale their business.
Connectivity. Your treasury should be seamlessly integrated with the rest of your financial operations so you have a real-time, holistic view. Integration helps your CFO and other finance leaders plan better and know when strategy adjustments are needed.
Visibility. Economic conditions shift daily. Effective treasury management requires diligence and attention to ensure the strategy that worked yesterday still meets the goals you have for tomorrow.
A year or two ago, when yields were lower, many looked to riskier assets to earn as much as possible on cash reserves. But with today's soaring interest rates, your focus should be on protecting what you have while earning conservative rates of return. That might mean investing in simpler assets like U.S. treasury securities that are next-day liquid, backed by the government, and currently paying upwards of three or four percent. In this market, you don’t need to take on the same level of risk to get manageable and meaningful returns on your excess cash.
That is why enterprise companies have entire treasury departments within their corporate finance teams tasked with monitoring forces that could negatively impact assets. We recently released Prime Treasury to make treasury management more accessible for businesses with more than $5M in investable assets, complementing Rho’s other treasury and banking services.
Not sure where to start? Reach out to Rho today; we can help you determine the right treasury management strategy for your business.