Treasury Management – Its Functions, Types and Benefits
Even the most well-funded business can run into huge losses if it does not have the resources to fulfil its responsibilities and monetary obligations. A treasury management system prevents a business from such loss-making scenarios by monitoring and handling the financial aspects of the business. Its primary objective is to improve the financial landscape of a business. It does so by understanding the financial responsibilities of the organisation and finding ways to achieve its monetary goals while optimising the business’ earnings.
Let’s start by understanding the importance of the Treasury Management System!
Importance of Treasury Management System
- The primary objective of the treasury management system is to maintain and optimise the financial health of a business. This can range from identifying redundant expenditures to preventing financial fraud by implementing the necessary security framework.
- By taking care of such a wide array of financial needs and activities, the treasury management system allows businesses to focus on their core responsibilities and primary tasks instead of spending resources on their financial management.
- This gives companies a detailed snapshot of their assets and liabilities, this is very important because companies should be well-informed about their financial status.
What Are the Functions of Treasury Management?
Several functions are associated with treasury management. Depending on the type of business and financial requirements of all the stakeholders, treasury management functions can be expanded or simplified.
1. Cash Management
A treasury management system allows organisations to optimise their cash flow by providing real-time visibility into their cash position. Additionally, it enables them to forecast future cash needs. It also supports the management of cash balances and the execution of transactions, such as wire transfers and direct debits, common in organisations.
2. Risk Management
Treasury management system enables businesses to monitor and manage risks associated with their financial activities, such as foreign exchange and interest rate risks. It helps diversify the company’s wealth between cash and non-cash assets to improve the company’s financial standing by distributing the risk. It can also provide tools to help organisations assess and manage credit risk.
3. Financial Reporting
It generates financial reports such as balance sheets and income statements. Such records are vital for organisations to track their financial performance to make informed decisions and changes in their current working environment.
4. Compliance
Another function of a treasury management system is providing companies with the tools and guidance to meet regulatory requirements and maintain compliance with financial reporting standards. The system also supports the implementation of internal controls and policies to ensure that financial activities are conducted transparently and legally.
5. Transaction Management
It supports the processing of financial transactions of a business, including payments, receipts, and investments. It improves the efficiency of the transaction cycle by automating the reconciliation of accounts and the tracking of transactions.
6. Debt Management
It also tracks and manages debt obligations, including loan repayment schedules and interest payments of the organisation.
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What Are the Types of Treasury Management Services?
Treasury management services offer a range of services to the companies. Right from cash flow management to risk assessment, treasury management services can be tailored to suit your organisation’s needs. They can be seamlessly integrated with the organisation’s existing framework.
1. Account Reconciliation
Account reconciliation is a process in which the internal financial records of a company for a specific period are compared against monthly statements from external sources. These sources could be any financial institution, such as a bank, credit card company, or other financial institution, to ensure they match up.
2. Automation
Treasury management services promote the integration of routine tasks such as payments and collections.
3. Integrated Receivables
This is a service that optimises capital usage to promote growth and accelerate the growth of funds.
4. Risk Assessment/ Mitigation
It improves the company’s risk tolerance while protecting it from unnecessary exposure to fraud and losses.
5. Global Treasury Services
This type of treasury management service provides ease of monetary transactions involving foreign currencies.
6. Account Sweep Services
This service helps improve cash balances with investment sweeps.
7. Consulting Services
These services enable businesses to streamline their services and optimise their treasury procedures.
8. Payroll Services
This treasury management service automates and streamlines all payment-related activities, including payroll deposits.
9. Merchant Services
This category is extended to clients to improve convenience and ease of business.
What Are Treasury Management Products?
Several treasury management products can be used independently or in groups to cater to the unique demands of the business of various sizes.
1. Automated Clearing House
This is a treasury management service that automates the process of same-day money transfers. A popular pick among businesses of all types, ACH automates four primary services: direct deposit, tax payments, corporate payments, and consumer payments.
2. ACH Fraud Detection
An extension of ACH, the ACH fraud detection product, as the name suggests, checks any fraudulent activities that threaten your account.
3. Wire Transfers
Wire transfers is a commonly used treasury management product to transfer large payment amounts without visiting a bank.
4. Remote Deposit Capture
This treasury management product will scan images to verify deposits and transfer funds into bank accounts. This enables a smooth flow of funds and reduces manual tasks.
Benefits of Treasury Management in a Business
Treasury management is an essential aspect of any organisation’s financial framework. There are various benefits of treasury management.
1. Improved Efficiency
A treasury management system automates and streamlines many financial processes, including cash management, forecasting, and risk management, which can help an organisation save time and reduce errors.
2. Enhanced Cash Visibility
This system provides real-time information on an organisation’s cash position, enabling more effective cash management and reducing the risk of running out of cash.
3. Improved Risk Management
It enables organisations to monitor and manage risks associated with their financial activities, such as foreign exchange and interest rate risks.
4. Enhanced Compliance
A treasury management system can help organisations meet regulatory requirements and maintain compliance with financial reporting standards.
5. Greater Control
A treasury management system gives organisations greater control over their financial resources, enabling them to make more informed financial decisions.
6. Time
Treasury management services help businesses by streaming financial activities, thus allowing them to save time on unnecessary activities.
Points to Remember About Treasury Management
- Treasury management primarily involves the management of an organisation’s financial resources, such as cash, securities, and debt.
- It aims to optimise the organisation’s cash flow, reduce financial risk, and improve financial performance to facilitate maximum profits.
- It involves the management of an organisation’s financial policies and procedures, including the establishment of internal controls and the implementation of compliance measures.
Final word
Treasury management is an essential part of any business as it safeguards the financial interests, policies and procedures of the established. Treasury operations such as risk mitigation, fraud detection, financial reporting and automation of basic economic activities like payroll services are essential parts of the system. Effective treasury management requires a thorough understanding of an organisation’s financial position and the ability to anticipate and respond to changes in the economic environment. It allows continuous business growth by controlling and promoting the company’s financial health.
FAQs
Ans: The treasury management system allows companies to reduce risk by monitoring financial activities, suggesting changes when required and diversifying assets to improve returns.
Ans: An Automated Clearing House or ACH is a treasury management service that automates the process of same-day money transfers. It deals with direct deposit, tax, corporate, and consumer payments.
Ans: Some of the most popular functions of treasury management are cash management, risk management, financial reporting, compliance, transaction management and debt management.
Ans: The treasury management system monitors and flags suspicious activity, recommending the necessary prevention and redressal mechanism.
Ans: Account reconciliation is a process in which the internal financial records of a company are compared against monthly statements from external sources for a specific timeframe.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
