Cash management has become a specialized function and in today’s environment, treasuries are expected to perform the following critical functions:
1. Financial risk management
Financial risk management aims to significantly reduce financial risks, including foreign exchange risk management, commodity price risk management, interest rate risk management and other market risk management. This is necessary to keep trading margins free from market volatility. This aims to plan, control and monitor the market risks to which a company is exposed. It also supports the management of aspects related to regulatory compliance.
2. Cash management
On the other hand, the financial management of cash is centered on
- Management of collections and disbursements
- Cash flow optimization
- Cash Pooling across the company
- Minimize float in the company’s value chain and optimize working capital
- Cash budget management
3. Funding management
Cash management also focuses on managing loans to reduce the financial costs of a business enterprise, which includes reducing the cost of borrowing. It also focuses on managing investments by redeploying the efficiency of corporate cash flows and optimizing the risk-return profile of investable surpluses. The Treasury function helps manage the risk-return profile as well as the tax efficiency of investment instruments. In larger companies, this may also include trading in bonds, currencies and financial derivatives.
We will now explore some of these functions in detail in later articles.