Corporate treasury management involves the handling of incoming payments, investments, debt, and financial risks to cover bills, maintain operations, and plan for the future. This process includes overseeing bank accounts, monitoring cash flow, and planning for outside factors such as currency risk and interest rate changes.

Companies increasingly need good treasury management systems to keep their businesses running, with the global market for these systems projected to grow from its $5.1 billion USD in 2023 to $12.6 billion USD by 2030. By improving cash use and financial risk management, companies can improve their profitability and stay prepared for opportunities and challenges as they arise.

Below, we’ll cover what corporate treasury management does for a business, how a management system works, and how to refine internal processes.

What’s in this article?

• What corporate treasury management does for a business
  
• How a treasury management system (TMS) works
  
• Corporate treasury management compliance
  
• Corporate treasury management challenges
  
• Best practices for corporate treasury management
  

What corporate treasury management does for a business

Corporate treasury management improves how a business handles its finances, including its cash, financial risk, funding, and investments. Here are the key operations this management system helps with.

• Cash and liquidity: Treasury teams ensure there’s enough cash available for daily operations without limiting opportunities to earn returns elsewhere. This involves managing bank accounts, predicting cash flow, and paying bills on time.

• Risk: Treasurers identify financial risks (e.g. interest rate changes, credit risk) that could affect the business. They use strategies such as hedging to manage these risks and protect the company’s profits.

• Funding and capital: Through methods such as borrowing and issuing bonds, treasury teams determine the best ways to raise money for the company. They manage relationships with banks and investors, finding the right balance of debt and equity to lower costs and increase flexibility.

• Investment: Treasury teams decide how to invest the company’s extra cash, whether it’s for short-term needs or longer-term growth. They ensure any spare money is working toward the company’s strategic goals.

• Financial planning and analysis: By analysing markets, economic trends, and company performance, treasury teams support the overall financial strategy. They facilitate decision-making on capital structure, borrowing, risk management, and more.

• Compliance and reporting: Treasurers ensure all financial activities comply with local laws and internal rules. They prepare reports for management, auditors, and regulators to keep everyone informed and maintain transparency.

How a treasury management system (TMS) works

A treasury management system (TMS) is a software tool that helps companies handle their financial operations more effectively. Here’s how it works.

• Cash management: A TMS gathers data from all the company’s bank accounts to show the cash available across different accounts and currencies. This helps the treasury team quickly decide where to move money to avoid overdrafts, make the most of interest rates, and reduce borrowing. Using features such as automated cash pooling, a company can consolidate funds to ensure efficient cash use.

• Cash forecasting and liquidity planning: By using data from accounts payable, accounts receivable, payroll, and other expenses, a TMS helps forecast cash flow. This projection can help the treasury team spot potential cash gaps or surpluses and plan accordingly – whether by securing funding, making investments, or just keeping enough cash on hand to cover the bills.

• Risk management: A TMS controls financial risks such as currency swings and interest rate changes by monitoring them and implementing strategies to hedge against them. This helps companies protect themselves from unexpected costs and keep their finances stable.

• Payment automation: By connecting directly with banks and payment networks, a TMS automates payments. Automation can reduce errors, accelerate processing, and maintain compliance with financial regulations.

• Account management and reconciliation: A TMS centralises account management and automates the reconciliation process. It can match bank statements with internal records, quickly catch any discrepancies, and reduce the time spent on manual checks.

• Debt and investments: A TMS tracks a company’s debt and investment positions to manage loans, keep track of interest payments, and comply with any financial contracts. It manages investments by monitoring maturities and yields and allocating spare cash for maximal returns.

• Financial reporting and compliance: A TMS generates detailed reports with accurate, timely information for internal teams, auditors, and regulators. These reports could include cash position summaries, risk exposures, and investment performance.

• System integration: A TMS integrates with financial platforms such as enterprise resource planning (ERP) systems and accounting software for an easy information flow. This can reduce silos, create a centralised dataset, and enable smarter, data-driven decisions.

Corporate treasury management compliance

Regulatory compliance is a key part of treasury management. Financial regulations prevent money laundering, protect data privacy, and create transparency. Non-compliance risks fines, reputational damage, and operational disruptions. Here’s what businesses need to keep in mind regarding treasury management compliance.

• Anti-Money Laundering (AML) and Know Your Customer (KYC): Treasury teams must comply with AML laws and KYC rules to prevent illegal activities such as money laundering. This means verifying clients’ identities and observing transactions for anything suspicious. Strong internal controls, regular compliance checks, and a TMS that automates transaction monitoring can help manage large amounts of data and proactively identify warning signs.

• Data protection and privacy: Treasuries must maintain strict control over how sensitive financial data is stored, processed, and shared. Doing so helps to stay in compliance with laws such as the EU’s General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA). A TMS with strong data encryption, access controls, and regular staff training on data privacy can help keep these processes compliant.

• Sarbanes-Oxley (SOX) Act compliance: SOX requires solid internal controls and accurate reporting to prevent fraud in publicly traded US companies. Treasury teams must maintain detailed documentation, clear audit trails, and proper approvals for all transactions. A TMS can help automate compliant reporting processes to prevent slowdowns.

• Foreign exchange and derivatives regulations: Treasury teams must manage foreign exchange and derivatives in accordance with rules such as the Dodd-Frank Act in the US or the European Market Infrastructure Regulation (EMIR). This means reporting trades, following margin rules, and meeting clearing requirements. A good TMS can automate many of these processes for easier, more accurate reporting.

• Accounting standards: Treasurers must meet global financial reporting standards such as the International Financial Reporting Standards (IFRS). These standards dictate how to handle hedges, cash flows, financial instruments, and more. The requirements also differ by region. Using a TMS that supports different accounting frameworks and automates compliant reporting can simplify this process and keep finances accurate.

• Sanctions and embargo compliance: To comply with rules from government agencies such as the US Office of Foreign Assets Control (OFAC), treasury teams must follow changing sanctions lists to ensure they aren’t transacting with sanctioned entities or countries. A TMS that integrates sanctions screening and automated alerts helps teams comply with these requirements without labour-intensive manual checks.

Corporate treasury management challenges

Treasurers must fine-tune the company’s cash flow, handle financial risks, comply with complex regulations, and ensure the company is using the latest technology – all while keeping costs in check and opportunities open. Here are some of the main challenges treasury teams face and practical ways to tackle them.

• Maintaining liquidity: Treasurers must ensure there’s enough cash available for the company’s needs without having too much sitting idle. This means carefully managing cash flow and planning for any cash shortfalls or surpluses. A TMS can help by giving a real-time view of cash across all accounts and forecasting future needs. Automating processes such as cash pooling and sweeping can also help keep cash where it’s needed most and reduce borrowing costs.

• Balancing financial risks: Treasury teams must manage risks including interest rate changes, currency swings, and credit risks – all of which can impact the company’s profits. Solid risk management plans can help by identifying where the risks are, setting limits, and using strategies such as hedging to reduce exposure. A reliable TMS can simplify these tasks by automating risk monitoring and giving real-time data to inform decisions.

• Keeping up with regulatory compliance: Financial regulations are always changing, and keeping up with them is a constant challenge for treasurers. Rules regarding AML, data privacy, derivatives, and accounting can vary by region and are often intricate. Falling behind can lead to hefty fines or damage to the company’s reputation. Staying compliant means continually reviewing regulations, conducting audits, and using a TMS that can automate reporting and track compliance requirements.

• Integrating technology and managing data: Modern treasury functions rely on a mix of systems, from ERP platforms to trading systems and bank interfaces. Businesses must ensure data consistency and workflow refinement across systems to keep things running smoothly. Investing in the right TMS can help – integration with other systems creates a single source of truth, cloud-based solutions add flexibility, and real-time data analytics give the treasury team valuable insight for decision-making.

• Guarding against cybersecurity threats: With more treasury operations digitising, cyberattacks are a growing concern. Treasurers must protect financial data and transactions from fraud and hacking with strong security measures such as multi-factor authentication, data encryption, and regular security checks. They must also keep software and systems up to date with the latest security features.

• Handling market uncertainty: Fluctuating interest rates and unpredictable market conditions can affect both borrowing costs and returns on investment. Treasury teams must monitor the markets and be ready to adjust their strategies as needed. This could involve changing the mix of debt with fixed interest rates rather than floating interest rates, using interest rate swaps, or tweaking investment tactics. Regular scenario planning and stress testing can help businesses prepare for different economic situations.

• Bridging talent and skill gaps: As treasury work gets more complex, there’s a growing need for professionals who know both finance and modern technology. Finding and retaining people with the right skills isn’t always easy. Companies can invest in ongoing training for their treasury teams to improve both technical skills (e.g. risk management, data analysis) and soft skills (e.g. strategic thinking, communication), helping to bridge this gap.

• Managing global operations: Companies operating in multiple countries might struggle with managing cash, investments, and risks across different currencies. Changes in foreign exchange rates can impact profits and liquidity. Using a TMS that handles multi-currency transactions and provides real-time reports on foreign exchange exposures can help manage this. Establishing centralised treasury operations or an in-house bank can further simplify the process and enhance cash management.

Best practices for corporate treasury management

Refined treasury management involves creating a smart, efficient setup that gives you control over cash, investments, risks, and compliance without burdensome manual processes or outdated technology. Here are some best practices for creating an effective treasury setup.

• Assess your financial position: Understand your company’s cash flow patterns, liquidity needs, outstanding debts, investment holdings, and risk exposures. Source the right people from finance, operations, and IT to map out where everything stands.

• Set practical goals: Define what success looks like for your treasury team and develop a set of practical policies that reflect your company’s needs – such as guidelines on how much cash to keep on hand, what kinds of investments are acceptable, and when to hedge against currency risk. Ensure these goals are realistic and actionable.

• Choose the right TMS: The right TMS gives you real-time insight into your cash and liquidity positions, automates repetitive tasks, and manages risk – all while integrating with your existing financial systems. Evaluate TMS options based on your specific needs, and look for features such as cash forecasting, risk management dashboards, and integration capabilities with your ERP and banking platforms.

• Centralise cash: It can be tough to track and use cash when it’s spread across different accounts and subsidiaries. Implement cash pooling and sweeping arrangements so cash is automatically moved to a central account when possible. This can make it easier to manage liquidity and reduce unnecessary borrowing.

• Protect against financial risks: Use your TMS to check risk exposure and automate as much of the monitoring process as possible. Have a clear strategy for when and how to hedge risks, whether they’re currency risks, interest rate risks, or credit risks. Use tools such as derivatives when needed to keep things balanced.

• Automate payments and collections: Manual payment processing is slow, error-prone, and often not up-to-date. Incorporate automated payment approvals and processing directly within your TMS to create faster, more accurate processes and improve your cash flow. For collections, simplify invoicing and establish reminders or automatic follow-ups to shorten payment cycles.

• Plan for compliance: Use your TMS for automated compliance monitoring and reporting, ensuring it can handle different regulations across the regions in which you operate. Have the system automatically flag any exceptions so you can deal with them proactively.

• Manage debt and investments: Use your TMS to track all debt schedules and check compliance with any contracts. For investments, build a strategy that balances risks and returns based on your company’s needs. Use the TMS to monitor performance and adjust as needed.

• Integrate internal systems: Ensure your TMS integrates with your ERP, accounting software, and other financial platforms. Implement automated data transfers to keep everything synced without manual intervention. This can reduce the risk of errors, save time, and keep everyone working with the same data.

• Build a skilled team: Make sure your treasury team is skilled not just in traditional finance, but also in using modern tools and adapting to new challenges. Focus on hiring and developing talent who understand both finance and technology, and invest in training on new systems and market trends. This can help create a culture where the team is always looking to improve and innovate.