What is treasury management?
Tuesday, 26 February 2019
Managing money—cash, investments, receivables and the associated risk—is an ongoing challenge for every business.
Many businesses have various individuals or departments managing different parts of their financial responsibilities, but treasury management offers a single operational strategy that manages and oversees all areas of the business's finances.
Most treasury management operations handle collections, disbursement, information reporting, capital management, currencies and risk management. All these areas are distinct but related: For instance, without timely collections, a business may not have the cash flow on hand to pay bills when they're due. And without managing risk appropriately, a business may not make sound decisions for excess cash.
How treasury management benefits business
A sound, unified approach to treasury management doesn't just keep a business from running out of money or making a bad investment. It also maximizes profits and ensures, that at all times, a company has the cash it needs to continue operating effectively.
Here are four important ways that treasury management can benefit a business of any size.
- Optimizing liquidity. Even profitable companies can fail if they don't have the cash available to pay bills. Treasury monitors the timing and amounts of cash inflows (such as accounts receivable, loans and asset sales) and outflows. By monitoring and tracking these activities, treasury management creates strategies and systems to ensure that the business always has the appropriate amount of cash on hand.
- Managing collections. An important part of ensuring cash flow is collecting payments from customers regularly and on time. Treasury management can set policies for accounts payable and receivable, set policies for credit approval and define collection terms. It also works to earn short-term interest on the company's extra cash on hand. (Even if your business will be using that customer payment to pay for inventory in two weeks, the right treasury management strategy can ensure that the business earns interest on it in the meantime.)
- Hedging against risk. Whether a business needs to develop alternative financing plans for upcoming projects, or minimize the potential losses incurred through foreign currency exchange, treasury management works to develop proper solutions for managing financial risk.
- Sharing information. Business owners and leaders need current financial information to be able to make wise decisions and future plans. With a perpetual handle on business finances and forecasts, treasury management can provide that information as needed.
Learn more about treasury management and how it can improve your business operations and financial picture by contacting a BBVA banker.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates. All accounts and credit are subject to approval, including credit approval. BBVA and BBVA Compass are trade names of BBVA USA, a member of the BBVA Group. BBVA USA is a Member FDIC.
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