January 26, 2022


Accounting + Finance Blog

Treasury Department meaning and Key Explanations

Treasury Department meaning and Key Explanations

One of the most important departments in any organization is the treasury department. However, it is most underrated in many businesses, especially small firms. In this article, we will define this department and explain it a bit.

Definition of Treasury Department

The treasury department means a department that collects, disburses, invests, and sources funds for an organization. The treasury department manages the liquidity position of an entity to mitigate against reputational, operational, and financial risks.

Key Explanations of Treasury Department

The treasury department is more common in the banking sector than other sectors of an economy. However, all organizations, whether profit or non-profits, need to have a team in a treasury function. This function normally reports to the chief financial officer (also called finance manager) of the entity.

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The first thing that comes to people’s minds when they hear of this department is cash management. Yes, this function handles cash, but that’s not the only job they do. They also manage near cash resources like derivatives, foreign exchange, and investments.

It manages the company’s finances and ensures that it mitigates against the risk of having excess or inadequate funds. We can say that the treasury department ensures that the company has a balanced working capital. These risks are reputational, operational, and financial.

Reputation risk is the risk that the entity’s public image will be ruined as a result of a lack of liquidity. This is mostly true with banks. If clients/customers of a bank notice that the banks may not have the cash to meet their demands. These customers will withdraw all their money deposited in the bank. Thereby liquidating it.

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Operational risk is the risk that the entity cannot meet daily obligations. There is no cash to meet daily expenses within the firm. No money to fuel the company’s generator, no cash to pay for stationery and among other things.

On the other hand, financial risk is the risk that the entity will lose money from an investment. Such investment may be in a subsidiary, mutual funds, company stocks, and more. For example, a company may invest its excess cash in the shares of another company. However, it must monitor its investment to avoid losses. What if the company invested in fails? It is the goal of the treasury department to mitigate against financial risk.


The Treasury Department is responsible for the use of an entity’s liquid resources. It ensures that the company maintains a balanced liquidity position while mitigating operational, financial, and reputational risks.