Treasury Functions
How often management should
The general mission of the treasury department is to
manage the liquidity of a business. This means that
all current and projected cash inflows and outflows
must be monitored to ensure that there is sufficient
cash to fund company operations, as well as to ensure
that excess cash is properly invested. While
accomplishing this mission, the treasurer must
engage in considerable prudence to ensure that
existing assets are safeguarded through the use of
safe forms of investment and hedging activities.
Detail of Treasury Functions
In order to accomplish its mission, the treasury
department must engage in the following activities:
1. Cash forecasting. Compile information from
around the company to create an on-going
cash forecast. This information may come
from the accounting records, the budget,
capital budget, board minutes (for dividend
payments) and even the CEO (for
expenditures related to acquisitions and
divestitures). Cash flow forecasting or cash
flow management is a key aspect
of financial management of a business,
planning its future cash requirements to
avoid a crisis of liquidity.
Cash flow forecasting is important because if a
business runs out of cash and is not able to obtain
new finance, it will become insolvent. Cash flow is
the life-blood of all businessesparticularly start-ups
and small enterprises. As a result, it is essential that
management forecast (predict) what is going to
happen to cash flow to make sure the business has
enough to survive.
forecast cash flow is dependent on the financial
security of the business. If the business is struggling,
or is keeping a watchful eye on its finances, the
business owner should be forecasting and revising his
or her cash flow on a daily basis. However, if the
finances of the business are more stable and 'safe',
then forecasting and revising cash flow weekly or
monthly is enough.[1] Here are the key reasons why a
cash flow forecast is so important:
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.
Make sure that the business can afford to
pay suppliers and employees. Suppliers who
don't get paid will soon stop supplying the
business; it is even worse if employees are not
paid on time.
Spot problems with customer payments
preparing the forecast encourages the business to
look at how quickly customers are paying their
debts. Notethis is not really a problem for
businesses (like retailers) that take most of their
sales in cash/credit cards at the point of sale.
As an important discipline of financial
planningthe cash flow forecast is an important
management process, similar to preparing
business budgets.
External stakeholders such as banks may
require a regular forecast. Certainly, if the
business has a bank loan, the bank will want to
look at the cash flow forecast at regular
intervals.
 2. Working capital monitoring. Review the
corporate policies related to working capital,
and model their impact on cash flows. For
example, looser credit results in a larger
investment in accounts receivable, which
consumes cash.
3. Cash concentration. Create a system for
funnelling cash into a centralized investment
account, from which cash can be most
effectively invested. This may involve the
use of notional pooling or cash sweeps.
Cash concentration is the transfer
of funds from diverse accounts into a central
account to improve the efficiency of cash
management. The consolidation of cash into
a single account allows a company to
maintain smaller cash balances overall, and
to identify excess cash available for short
term investments. The cash available in
different bank accounts are pooled into a
master account. The advantages of cash
concentration are 1) Cash control 2) Cash
visibility
For example, you have 2 bank accounts (i.e.
Rizabank and Bank Islam). For each of these bank
accounts, you set a minimum of RM10,000. In the
actual account, it appears Rizabank has RM15,000
while Bank Islam has RM20,000. The difference
RM5000 (from Rizabank) and RM10,000 (from Bank
Islam) will be transferred to Bank Account C. This
increases the possibility of using the surplus for other
uses.
4. Investments. Use the corporate investment
policy for allocating excess cash to various
types of investments, depending on their
rates of return and how quickly they can be
converted into cash. An investment is
an asset or item that is purchased with the
hope that it will generate income or
appreciate in the future. In an economic
sense, an investment is the purchase of
goods that are not consumed today but are
used in the future to create wealth. In
finance, an investment is a monetary asset
purchased with the idea that the asset will
provide income in the future or appreciate
and be sold at a higher price.
5. Grant credit. Issue credit to customers,
which involves management of the policy
under which credit terms are granted.
6. Fund raising. Determine when additional
cash is needed, and raise funds through the
acquisition of debt, sale of stock, or changes
in company policies that impact the amount
of working capital required to run the
business. Fundraising or fund raising (also
known as "development") is the process of
gathering voluntary contributions of money
or other resources, by requesting donations
from individuals, businesses, charitable
foundations, or governmental agencies (see
also crowd funding). Although fundraising
typically refers to efforts to gather money
for non-profit organizations, it is sometimes
used to refer to the identification and
solicitation of investors or other sources of
capital for for-profit enterprises.
7. Risk management. Use various hedging and
netting strategies to reduce risk related to
changes in asset values, interest rates, and
foreign currency holdings. Risk
management is the process of identification,
analysis and either acceptance or mitigation
of uncertainty in investment decision-
making. Essentially, risk management
occurs anytime an investor or fund
manager analyses and attempts to quantify
 the potential for losses in an investment and
then takes the appropriate action (or
inaction) given their investment
objectives and risk tolerance. Inadequate
risk management can result in severe
consequences for companies as well as
individuals. For example, the recession that
began in 2008 was largely caused by
the loose credit risk management of
financial firms.
8. Credit rating agency relations. Keep any
credit rating agencies informed of the
company's financial results and condition, if
these agencies are providing ratings on the
company's marketable debt issuances.
A credit rating agency (CRA, also called
a ratings service) is a company that
assigns credit ratings, which rate a debtor's
ability to pay back debt by making timely
interest payments and the likelihood
of default. An agency may rate the
creditworthiness of issuers of debt
[1]
obligations, of debt instruments, and in
some cases, of the servicers of the
[2]
underlying debt, but not of individual
consumers.
The debt instruments rated by CRAs
include government bonds, corporate
bonds, CDs, municipal bonds, preferred stock, and
collateralized securities, such as mortgage-backed
securities and collateralized debt obligations. [3]
9. Bank relations. Keep the company's bankers
apprised of the company's financial
condition and projections, as well as any
forthcoming changes in its need for
borrowed funds. The discussion may extend
to the various services provided by the
banks to the company, such as lockboxes,
wire transfers, ACH payments, and so forth.
Relationship banking is a strategy used by
banks to enhance their profitability. They
accomplish this by cross-selling financial
products and services to strengthen their
relationships with customers and increase
customer loyalty. Relationship banking
involves offering customers a broad array of
financial products and services that go
beyond simple checking and savings
accounts.
In addition to these two basic products,
relationship-banking products may include
certificates of deposit, safe deposit boxes,
insurance, investments, credit cards, loans
and business services (e.g., credit
card processing). They may also include
specialized financial products designed for
specific demographics, such as students,
seniors or the wealthy.
10. IT systems. The department maintains
treasury workstations that provide it with
information about cash holdings,
projections, market conditions, and other
information.
11. Reporting. The treasurer provides the senior
management team with reports concerning
market conditions, funding issues, returns on
investment, cash-related risks, and similar
topics.
12. Mergers and acquisitions. The department
may advise on the company's acquisition
activities, and may be called upon to
integrate the treasury functions of an
acquiree. Mergers and acquisitions (M&A)
is a general term used to refer to the
consolidation (Consolidation, in technical
analysis, is the movement of an asset's price
within a well-defined pattern or barrier of
trading levels. Consolidation is generally
regarded as a period of indecision, which
ends when the price of the asset breaks
beyond the restrictive barriers. Periods of
consolidation can be found in charts
covering any time interval (i.e. hours, days,
etc.), and these periods can last for minutes,
days, months or even years. Lengthy periods
of consolidation are often known as a base)
of companies. A merger is a combination of
two companies to form a new company,
while an acquisition is the purchase of one
company by another in which no new
company is formed.