Treasury management involves all managerial activities that ensure the availability of cash at the right time. Management is about getting things done efficiently and effectively. This is also true with the treasury department.
Definition of Treasury Management
Treasury Management means planning, organizing, directing and controlling an entity’s cash and near cash resources in order to achieve its goals and avoid operating, reputation and financial risks.
Treasury management applies all the qualities of management. The goal of doing so is to achieve the organization’s goals and objectives. The primary goal of any establishment is profit. Others are quality customer’s service, maximizing shareholders wealth, building a positive image, just to mention a few.
To achieve these goals and objectives, the treasury department team has a role to play. Planning of liquidity is one important part of it. After planning, the head of treasury staff will organize and direct the achievement of the plan. Finally, control measures are taken. This is to check if everything goes according to plan. If not what causes the discrepancy.
All the above activities are to ensure that cash is available at the right time. Also, inadequate cash or excess cash must be avoided. Treasury management includes investing excess cash in several securities. Like mutual funds, fixed deposits, shares, treasury bills among others. In doing so, it is necessary to avoid too much risk. And to ensure that the maturity period for the investment tally with when there is huge cash outflow from the entity.
More so, treasury management involved avoiding risks. The major risk here includes reputational, operational and financial risk. Avoiding what is called “bad name” is an important aspect of the treasury department of an entity. Not having cash to pay creditors and suppliers may give the entity a name that it doesn’t deserve. Also, inability to meet customers orders as a result of inadequate cash is a bad omen. And will affect profitability.
Function of Treasury management
The main functions of treasury departments are:
- Cash management
- Liquidity management
- Adequate funds at the right time
- Deployment of funds at the right time
- Optimizing the use of funds
- Investing excess cash
- Mitigating against risks
Treasury management ensures the use of funds using managerial activities. The goal is to make liquidity available to the entity at all times. This will help the entity to achieve its profit making goals.