Cash & Liquidity ManagementCash ManagementWhat is the function of corporate treasury?

What is the function of corporate treasury?

The treasury department has long guided the firm’s strategic agenda. If anything, the importance of the treasury function has grown more pronounced

“We can’t be woolly about our roles – today or in the future – and we need to be ruthlessly analytical about our future for the role of the treasurer to successfully develop,” a delegate at this year’s Treasury Leaders Summit in London recently told GTNews. “We have to define where we are now to be able to migrate.”

The underlying theme the delegate hinted at was that corporate treasurers’ roles evolve over time, with new business requirements, technological solutions, and economic demands meaning a constant awareness of the changing corporate world must constantly be analysed by the department.

But underpinning those evolutionary steps remains a number of key functions and processes that corporate treasurers must remain focus on. The pillars upon which a firm’s financial health is held are these key functions – central to every investment, business decision, short and long term goals, and generally keeping the company within the parameters it seeks to determine itself. It provides the measure with which each department considers success, the future possibilities of the company as a whole, and directs the many cogs that make the firm work. Here, GTNews looks at those fundamental tasks the corporate treasury function is tasked with.

Cash management

The role of treasury to be able to manage cash – and other short-term assets to manage the firm’s liabilities – is not to be understated. The function may seem straightforward, but a great deal of resources and treasury intelligence is used in the cash management function of the world’s most successful firms and financial service providers.

The ability to transfer longer term assets into short term, manageable and convertible assets such as cash is crucial to a company’s health. Transfer too much, and the company may lose out on profitable investments – from bonds or savings returns, or direct business investments. Conversely, if the company does not have enough cash at it’s disposal, it could face penalties in not being able to meet short-term liabilities.

For multinational firms, the treasury function is responsible for moving cash through the system and across jurisdictions. This in itself requires a great deal of treasury intelligence, in being able to move the right sums around different units while factoring in the need to retain cash in a centralised system to factor for the unknown. With the cash management function, the corporate treasury will work closely with the finance and accounting departments, in a bid to make sure that the company is in good health and supporting its network.

Foreign exchange

From the multinational firm’s perspective, the treasury management system’s role is perhaps obvious, but nonetheless pivotal to operations. Being able to manage the flow of funds across borders to different strands of the business while factoring in fluctuations in currencies – and monitoring for potential future changes in foreign exchange based on a variety of factors such as interest rates in different jurisdictions – has become more important in recent years as firms expand across global markets. Getting the foreign exchange function wrong can be costly, should the value of cash deteriorate as it crosses borders.

For smaller firms, treasury’s capabilities to utilise proper foreign exchange functionality is no less important. Most firms in today’s global markets import and export goods and services, so naturally funds come in and go out in different currencies. Here, not only is it important for the treasury department to provide the requisite funds for transactions to be able to be carried out, but a modern treasury manager will recognise that arbitrage opportunities lie in the conversion of currencies at different rates at different times – and not necessarily in the company’s home currency.

Investments and funding

One of the key metrics in an assessment of the performance of the corporate treasury department is its ability to successfully invest available funds while making sure short-term liabilities are accounted for.

In assessing the likely returns of an investment, the treasury will work closely with the company’s finance department in order to consider both the investment proposition in itself, as well as the opportunity costs in providing funds for the undertaking. The treasury may analyse other possible opportunities, and decide that funds are better used elsewhere – or indeed required for the day-to-day running of current operations. In this instance, a corporate treasury will assess all known opportunities, weighing them up against one another in order to exploit the very best returns available. Sound treasury intelligence, and assessing the treasury risk of the propositions, will be critical in allowing the firm to grow and prosper.

At any organisation, a firm’s finance department and other corporate levels will embark on rounds of treasury consultations in order to assess the best values the firm can ascertain from different strategies. Here, the treasury department will use knowledge of different financial techniques and market intelligence to calculate and decide on the best course of action.

Financial supply chain

The firm’s management of its funds across its supply chain will necessarily be decided upon by its corporate treasury, which it leans on for the smooth transition of those funds through its network.

Much academic theory has been published on supply chain management, and that pertaining to the transfer of funds has become no less prominent. A treasury department’s ability to move funds fluidly, with ease, and at the discretion of the C suite as business models and economic environments change, is widely seen as the lifeblood of the firm. There are many software packages that can assist the treasury department to move funds around, but human interaction is still a large part of providing a subjective analysis of the firm’s short and long-term financial requirements.

Risk management

Assessing a firm’s risk profile is a critical component in deciding which direction to drive the firm. When the C-suite has decided on the levels at which it would like the rest of the firm to set its exposures, the treasury is tasked with ensuring those risk levels are delivered.

Further, the treasury will decide upon issues such as cash levels and exposures to different investment, based on those risk profiles. With that risk profile in mind, the firm’s treasurers will assess which exposures to press and which may need to be curtailed.

There are various risk management techniques the corporate treasury will utilise. For instance, in order to mitigate financial risks, it may enter the futures markets, buying up derivative products in order to balance exposures and allow for greater investments in related areas. In extreme circumstances, the firm may analyse the company’s risk profile and decide to put more funds in longer term, safer investments such as government bonds, to reign in other risks currently being considered.


Ensuring that the company is in line with regulations is a key function for the corporate treasury, given how active it needs to be in various markets and its responsibilities for corporate finances.

With the avalanche of regulations that have hit financial markets since the global recession and subsequent attempt by regulators to tighten those markets, the task of the treasurer to keep abreast of regulatory developments has become burdensome. Europe’s second Markets in Financial Instruments Directive (MiFID II) for instance, and more recently the General Data Protection Regulation (GDPR), both of which have ramifications for firms across the globe, treasurers have much to keep up with.

Financial technology

The various software tools to have come on the market over the past few years promising to help company’s better use their financial supply chains and treasury systems have played a large part in supporting the treasury function. Many of these systems have added to the functionality of each firm’s treasury capabilities, but also created the need for the department to constantly assess the software market, should a new offering be made available that could add significant competitive advantages.

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