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Treasury Functions enough to survive.

How often management should


The general mission of the treasury department is to forecast cash flow is dependent on the financial
manage the liquidity of a business. This means that security of the business. If the business is struggling,
all current and projected cash inflows and outflows or is keeping a watchful eye on its finances, the
must be monitored to ensure that there is sufficient business owner should be forecasting and revising his
cash to fund company operations, as well as to ensure or her cash flow on a daily basis. However, if the
that excess cash is properly invested. While finances of the business are more stable and 'safe',
accomplishing this mission, the treasurer must then forecasting and revising cash flow weekly or
engage in considerable prudence to ensure that
monthly is enough.[1] Here are the key reasons why a
existing assets are safeguarded through the use of
cash flow forecast is so important:
safe forms of investment and hedging activities.
Identify potential shortfalls in cash balances
in advancethink of the cash flow forecast as
an "early warning system". This is, by far, the
most important reason for a cash flow forecast.
Detail of Treasury Functions

In order to accomplish its mission, the treasury Make sure that the business can afford to
department must engage in the following activities: pay suppliers and employees. Suppliers who
don't get paid will soon stop supplying the
1. Cash forecasting. Compile information from business; it is even worse if employees are not
around the company to create an on-going paid on time.
cash forecast. This information may come
from the accounting records, the budget, Spot problems with customer payments
capital budget, board minutes (for dividend preparing the forecast encourages the business to
payments) and even the CEO (for look at how quickly customers are paying their
expenditures related to acquisitions and debts. Notethis is not really a problem for
divestitures). Cash flow forecasting or cash businesses (like retailers) that take most of their
flow management is a key aspect sales in cash/credit cards at the point of sale.
of financial management of a business,
As an important discipline of financial
planning its future cash requirements to
avoid a crisis of liquidity. planningthe cash flow forecast is an important
management process, similar to preparing
Cash flow forecasting is important because if a business budgets.
business runs out of cash and is not able to obtain
External stakeholders such as banks may
new finance, it will become insolvent. Cash flow is
the life-blood of all businessesparticularly start-ups require a regular forecast. Certainly, if the

and small enterprises. As a result, it is essential that business has a bank loan, the bank will want to

management forecast (predict) what is going to look at the cash flow forecast at regular

happen to cash flow to make sure the business has intervals.


2. Working capital monitoring. Review the an asset or item that is purchased with the
corporate policies related to working capital, hope that it will generate income or
and model their impact on cash flows. For appreciate in the future. In an economic
example, looser credit results in a larger sense, an investment is the purchase of
investment in accounts receivable, which goods that are not consumed today but are
consumes cash. used in the future to create wealth. In
3. Cash concentration. Create a system for finance, an investment is a monetary asset
funnelling cash into a centralized investment purchased with the idea that the asset will
account, from which cash can be most provide income in the future or appreciate
effectively invested. This may involve the and be sold at a higher price.
use of notional pooling or cash sweeps. 5. Grant credit. Issue credit to customers,
Cash concentration is the transfer which involves management of the policy
of funds from diverse accounts into a central under which credit terms are granted.
account to improve the efficiency of cash 6. Fund raising. Determine when additional
management. The consolidation of cash into cash is needed, and raise funds through the
a single account allows a company to acquisition of debt, sale of stock, or changes
maintain smaller cash balances overall, and in company policies that impact the amount
to identify excess cash available for short of working capital required to run the
term investments. The cash available in business. Fundraising or fund raising (also
different bank accounts are pooled into a known as "development") is the process of
master account. The advantages of cash gathering voluntary contributions of money
concentration are 1) Cash control 2) Cash or other resources, by requesting donations
visibility from individuals, businesses, charitable
foundations, or governmental agencies (see
For example, you have 2 bank accounts (i.e. also crowd funding). Although fundraising
Rizabank and Bank Islam). For each of these bank typically refers to efforts to gather money
accounts, you set a minimum of RM10,000. In the for non-profit organizations, it is sometimes
actual account, it appears Rizabank has RM15,000 used to refer to the identification and
while Bank Islam has RM20,000. The difference solicitation of investors or other sources of
RM5000 (from Rizabank) and RM10,000 (from Bank capital for for-profit enterprises.
Islam) will be transferred to Bank Account C. This 7. Risk management. Use various hedging and
increases the possibility of using the surplus for other netting strategies to reduce risk related to
uses. changes in asset values, interest rates, and
foreign currency holdings. Risk
4. Investments. Use the corporate investment management is the process of identification,
policy for allocating excess cash to various analysis and either acceptance or mitigation
types of investments, depending on their of uncertainty in investment decision-
rates of return and how quickly they can be making. Essentially, risk management
converted into cash. An investment is occurs anytime an investor or fund
manager analyses and attempts to quantify
the potential for losses in an investment and wire transfers, ACH payments, and so forth.
then takes the appropriate action (or Relationship banking is a strategy used by
inaction) given their investment banks to enhance their profitability. They
objectives and risk tolerance. Inadequate accomplish this by cross-selling financial
risk management can result in severe products and services to strengthen their
consequences for companies as well as relationships with customers and increase
individuals. For example, the recession that customer loyalty. Relationship banking
began in 2008 was largely caused by involves offering customers a broad array of
the loose credit risk management of financial products and services that go
financial firms. beyond simple checking and savings
8. Credit rating agency relations. Keep any accounts.
credit rating agencies informed of the
company's financial results and condition, if In addition to these two basic products,
these agencies are providing ratings on the relationship-banking products may include
company's marketable debt issuances. certificates of deposit, safe deposit boxes,
A credit rating agency (CRA, also called insurance, investments, credit cards, loans
a ratings service) is a company that and business services (e.g., credit
assigns credit ratings, which rate a debtor's card processing). They may also include
ability to pay back debt by making timely specialized financial products designed for
interest payments and the likelihood specific demographics, such as students,
of default. An agency may rate the seniors or the wealthy.
creditworthiness of issuers of debt 10. IT systems. The department maintains
[1]
obligations, of debt instruments, and in treasury workstations that provide it with
some cases, of the servicers of the information about cash holdings,
[2]
underlying debt, but not of individual projections, market conditions, and other
consumers. information.
11. Reporting. The treasurer provides the senior
The debt instruments rated by CRAs management team with reports concerning
include government bonds, corporate market conditions, funding issues, returns on
bonds, CDs, municipal bonds, preferred stock, and investment, cash-related risks, and similar
collateralized securities, such as mortgage-backed topics.
securities and collateralized debt obligations. [3]
12. Mergers and acquisitions. The department
may advise on the company's acquisition
9. Bank relations. Keep the company's bankers activities, and may be called upon to
apprised of the company's financial integrate the treasury functions of an
condition and projections, as well as any acquiree. Mergers and acquisitions (M&A)
forthcoming changes in its need for is a general term used to refer to the
borrowed funds. The discussion may extend consolidation (Consolidation, in technical
to the various services provided by the analysis, is the movement of an asset's price
banks to the company, such as lockboxes, within a well-defined pattern or barrier of
trading levels. Consolidation is generally of consolidation are often known as a base)
regarded as a period of indecision, which of companies. A merger is a combination of
ends when the price of the asset breaks two companies to form a new company,
beyond the restrictive barriers. Periods of while an acquisition is the purchase of one
consolidation can be found in charts company by another in which no new
covering any time interval (i.e. hours, days, company is formed.
etc.), and these periods can last for minutes,
days, months or even years. Lengthy periods