Treasury Management: What It Is and Why It Matters

Cash flow is one of the most important aspects of managing any business — according to one study, more than 80 percent of businesses that fail owe their failure to poor cash flow management. Treasury management serves the vital function of monitoring and managing cash flow and all the components that go with it. But what exactly does treasury management entail? And do you really need to dedicate resources to this specific function?

The Basics of Treasury Management

Treasury management is a complex undertaking that can require a very specific set of skills and expertise, so most small and medium businesses contract their treasury management to their corporate bank rather than undertaking it themselves. Corporate banks dedicate specific departments to treasury management and cash management, designed to meet the unique needs of their enterprise customers.

The role of treasury management might include:

  • Addressing account efficiencies: automating payment and collection processes to make them more efficient can greatly reduce the delays associated with moving money around, making cash available to your business more quickly and allowing for more precise bookkeeping
  • Automating accounts receivable: one of the most difficult aspects of cash management is collecting from customers. Setting up automatic bill pay and other payment mechanisms is a good way to reduce friction in the accounts receivable process.
  • Forecasting: knowing when cash will flow in and out is crucial. Treasury management professionals can integrate your bank account information (especially if you hire the same bank for treasury management) to create detailed, accurate forecasts for cash flow.
  • Decision making: if you want to invest in new equipment, office space, or personnel, you need to know if you can afford it. With more detailed and comprehensive treasury management, you’ll know exactly when you have room to expand and when you need to tighten your belt.

Given the complicated nature of treasury management, all but the largest companies tend to contract the work to their banks. If you’re looking for treasury management services but don’t have the budget or scale to hire in-house treasurers, talk to your bank first.

The Benefits of Treasury Management

One of the most important benefits of treasury management is the time it saves you. Not only are you saving your team valuable time to spend on the job functions that matter most, but you’re uncovering inefficiencies and potential improvements in processes that can make the entire process move more quickly. You’ll also streamline payment authorization and initiation, reducing the time spent waiting for money to move.

Another significant benefit is the optimization of liquidity. As we mentioned earlier, you’ll need to spend money to grow and expand eventually, but it’s all too easy to overreach and spend beyond your means without realizing it. Your treasury team will monitor the timing and amounts of cash inflows and outflows to ensure that you always have enough cash on hand to pay your bills.

Finally, treasury management can help you manage risk. Whether you’re anticipating a major expense, a seasonal dip in revenue, losses to currency exchanges, or other significant changes in cash flow, your treasury management team can help you determine the best way to minimize and offset the risks involved.

Talk to Your Bank Today

Given the often hectic pace of modern business and finance, treasury management is no longer an optional investment. Your business needs the help of seasoned professionals to navigate the shifting landscape of technology and keep your spending on track, and your bank is the best place to start. If you’re ready to start taking treasury management seriously, get in touch with First Western Trust today.

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