19 Tips For Effective Treasury Management

13 July, 2021

Treasury teams are essential to the success of their organization, yet often misunderstood or underestimated. With the use of the below tips, one can increase the quality of their team and can increase the effectiveness of their treasury.

LIQUIDITY MANAGEMENT

1. The pivotal task of the treasury is to manage the liquidity of the organization. Daily cash flow plays an integral role to manage short-term liquidity. It provides us insights into payments to be made during the day and situations of acute cash deficit and surplus. It gives a source of planning to treasury so that no important payments get missed, appropriate debt instruments can be raised on better terms, and deployment of surplus cash to get overnight returns.
2. Cash Flow Forecasting is essential to make decisions about funding, capital expenditure, and investments. An accurate forecast can help an entity to predict future cash positions, avoid cash shortages, and provides an opportunity to earn returns on any cash surpluses. An entity can use various tools like 13 weeks rolling cash flows and projected annual cash flows to look into the future and plan their cash effectively.
3. We are now in the era of digital banking however still few of the companies carry and handle cash at their depots, agents and rely on collecting cash from their customers. Industries directly dealing with farmers, small businessmen or rural areas face challenges of cash collection. One should use Cash Management Services at nominal cost to avoid mishaps of cash handling. These services should be availed preferably from any bank having a leverage of a vast network of branches across various locations including rural areas within India.

RISK MANAGEMENT

1. A business inherits various risks viz. operational risk, commodity risk, liquidity risk, interest rate risk, foreign exchange risk, counterparty risk, credit risk, etc. An effective treasury can helps businesses to tame their unnecessary risk by adopting an efficient risk management policy. The risk management policy should define the assumption of necessary risks, risk appetite, and necessary instruments for its management.

INTERNAL CONTROL

1. Maker-Checker concept or the four eyes concept is one of the central concepts in treasury management. The principal says that each transaction must be executed by at least two persons or glanced at by at least four eyes for control perspective. The concept ensures that if any person is making any mistake while processing any payment or preparing any document, the other person is available to rectify the same. An entity can reduce the instances of error due to omission or commission through the application of this concept.
2. Money is the backbone of any organization and treasury manages such backbone through handling receipts and payments. From a control perspective, each payment file must be encrypted prior to upload to the bank portal. This helps the entity to avoid tempering with payment files by treasury personnel and minimize fraud instances.
3. Dual Signatory Authorization is a security that gives an entity, additional control over the payment they make. With dual authorization, two different users will be needed to authorize any payment above a certain threshold. This is governed through submitting a mandate to banks by the Board of Directors of the company about the thresholds and details of authorizers.

SAFEKEEPING

1. Treasury is the custodian of critical bank documents viz. checkbooks, debit cards, grid cards, corporate credit cards, etc. History is abundant with examples where promoters were defrauded by personnel in their organization due to misuse of critical documents. One should ensure that all critical documents must be unsigned and kept safely in the proper lock and key and necessary PIN/ Passwords are maintained in password-protected files with senior management or authorized personnel only.

RECORD KEEPING

1. Treasury needs to handle lots of documents viz. sanction letter, term sheets, executed loan documents and correspondence and mailers with banks. These documents must be filed in date-wise chronological order and a copy of the same should be preserved on the company’s server accessible only to the treasury team. This practice can save a lot of time otherwise used for shuffling documents while retrieving.

RECORD TO REPORT

1. Real performance of an organization can be evaluated through its efficient accounting system. Thus, a robust system like Enterprise Resource Planning (ERP) is paramount for its success. An ERP system usually covers much of the financial supply chain from recording all the transactions at various phases to generate regular reports. Treasury module should be activated in ERP for better reporting perspective or separate Treasury Management Software can be aligned for increasing efficiency and smooth reporting of the treasury.

AUTOMATION

1. Host to Host (H2H) Integration is an automated solution for secured and encrypted data transfer between banks and corporates. It is achieved through integrating the organization’s ERP with Bank’s server. It helps in reduced operational risk, automates reconciliation, and reduces complexity. Further, a reduction in manual reconciliation leads to improved audit compliance as well.
2.  In the current e-age, many companies are still dependent on manual cheque filing or continuous cheque printing. This can be disadvantageous due to the risk of counterfeiting and the cost of additional manpower. Through using a Digital Cheque printing system, one can save a lot of time, money, and hassle and further reduce the risk of fraud. Deployment of such systems improves efficiency and brings agility to the treasury.