Treasury Management details

1. What are the Functions of a Corporate Treasury?
The general mission of the treasury department is to manage the liquidity of a business. This means that all
current and projected cash inflows and outflows must be monitored to ensure that there is sufficient cash to
fund company operations, as well as to ensure that excess cash is properly invested. While accomplishing
this mission, the treasurer must engage in considerable prudence to ensure that existing assets are
safeguarded through the use of safe forms of investment and hedging activities.
Types of Treasury Functions
In order to accomplish its mission, the treasury department must engage in the following activities:
 Cash forecasting. Compile information from around the company to create an ongoing cash
forecast.This information may come from the accounting records,the budget, capital budget, board
minutes (for dividend payments) and even the CEO (for expenditures related to acquisitions and
divestitures).
 Working capital monitoring. Review the corporate policies related to working capital, and model
their impact on cash flows. For example, looser credit results in a larger investment in accounts
receivable, which consumes cash.
 Cash concentration. Create a system for funneling cash into a centralized investment account,from
which cash can be most effectively invested. This may involve the use of notional pooling or cash
sweeps.
 Investments. Use the corporate investment policy for allocating excess cash to various types of
investments, depending on their rates of return and how quickly they can be converted into cash.
 Grant credit. Issue credit to customers, which involves management of the policy under which
credit terms are granted.
 Fund raising. Determine when additional cash is needed, and raise funds through the acquisition
of debt, sale of stock, or changes in company policies that impact the amount of working capital
required to run the business.
 Risk management. Use various hedging and netting strategies to reduce risk related to changes in
asset values, interest rates, and foreign currency holdings.
 Creditrating agency relations. Keep any credit rating agencies informed of the company's financial
results and condition, if these agencies are providing ratings on the company's marketable debt
issuances.
 Bank relations. Keep the company's bankers apprised of the company's financial condition and
projections, as well as any forthcoming changes in its need for borrowed funds. The discussion
may extend to the various services provided by the banks to the company, such as lockboxes, wire
transfers, ACH payments, and so forth.
 IT systems. The department maintains treasury workstations that provide it with information about
cash holdings, projections, market conditions, and other information.
 Reporting. The treasurer provides the senior management team with reports concerning market
conditions, funding issues, returns on investment, cash-related risks, and similar topics.
 Mergers and acquisitions.The department may advise on the company's acquisition activities, and
may be called upon to integrate the treasury functions of an acquiree.
In essence,treasuryfunctions revolve around the monitoring of cash,the use of cash,and the ability to raise
more cash. All other tasks of the department support these functions.

2. Treasury management (or treasury operations) includes management of an enterprise's holdings, with
the ultimate goal of managing the firm's liquidity and mitigating its operational, financial and reputational
risk. Treasury Management includes a firm's collections, disbursements, concentration, investment and
funding activities. In larger firms, it may also include financial risk management.
Most banks have whole departments devoted to treasury management and supporting their clients' needs in
this area. Smaller banks are increasingly launching and/or expanding their treasury management functions
and offerings, because of the market opportunity afforded by the recent economic environment (with banks
of all sizes focusing on the clients they serve best), availability of highly seasoned treasury management
professionals, access to industry standard, third-party technology providers' products and services tiered
according to the needs of smaller clients, and investment in education and other best practices. A number
of independent treasurymanagement systems (TMS) are available, allowing enterprises to conduct treasury
management internally.
For non-banking entities, the terms Treasury Management and Cash Management are sometimes used
interchangeably, while, in fact, the scope of treasury management is larger (and includes funding and
investment activities mentioned above). In general, a company's treasury operations comes under the
control of the CFO, Vice-President / Director of Finance or Treasurer,and is handled on a day-to-day basis
by the organization's treasury staff, controller, or comptroller.
Bank Treasuries may have the following departments:
 A fixed income or money market desk that is devoted to buying and selling interest bearing
securities.
 A foreign exchange or "FX" desk that buys and sells currencies.
 A capital markets or equities desk that deals in shares listed on the stock market.
In addition the Treasury function may also have an asset liability management (ALM) desk that manages
the risk of interest rate mismatch and liquidity; and a funds transfer pricing or pooling function that prices
liquidity for business lines (asset sales teams) within the bank.
Banks may or may not disclose the prices they charge for Treasury Management products.
Functions
The significant core functions of a corporate treasury department include:
Cash and Liquidity Management
Cash- and liquidity management is often described as treasury's 'primary duty.' Essentially, a
company needs to be able to meet its financial obligations as they fall due, i.e. to pay employees,
suppliers, lenders and shareholders. This can also be described as the need to maintain liquidity,
or solvency of the company: a company needs to have the funds available that will enable it to stay
in business.[1] In addition to dealing with payment transactions; cash management also includes
planning, account organisation, cash flow monitoring, managing bank accounts, electronic
banking, pooling and netting as well as the functions of in-house banks.[2]

3. Risk Management
Further information: Financial risk management § Corporate finance
Risk management is the discipline of managing financial risks to allow the company to meet its
financial obligations and ensure predictable business performance. The aim of Risk Management
is to identify, measure, and manage risks that could have a significant impact on the business'
goals. It is important to note that the objective is not to eliminate all risk. Taking risk is a critical
part of any business – "no risk no profit". See: risk appetite; Enterprise risk management.
It is important, however, to take risks only in areas that the business has competitive advantage.
For example, an automotive company will want to take risks in design and engineering. but will
want to avoid risks in currencies and interest rates. On the other hand, a bank will be in a position
to take risks in currencies and interest rates but will avoid operational and regulatory risks.[3] See
Financial risk management § Application.
Treasurers are then typically responsible for managing:
 Liquidity risk: the company is unable to fund itself or is unable to meet its obligations;
 Market risk (or price risk): changes in market prices (typically foreign exchange, interest rates,
commodities) cause losses to the business;
 Credit risk: that a counterparty default causes loss to the business;
 Operational risk: fraud or error cause losses to the business.
Corporate Finance
Looking after contacts with banks and rating agencies, as well as discussions with credit insurers
and, if applicable, suppliers concerning periods allowed for payment, in conjunction with the
procurement of finance, also form part of the treasurer's core business.[2] See Treasurer § Corporate
treasurers and Cash flow forecasting § Corporate finance.
Regulation
Concerns about systemic risks in Over The Counter (OTC) derivatives markets, led to G20 leaders
agreeing to new reforms being rolled out in 2015. This new regulation, states that largely
standardized OTC derivative contracts should be traded on electronic exchanges, and cleared
centrally by Central Counterparty/Clearing House trades. Trades and their daily valuation should
also be reported to authorized Trade Repositories and variation margins should be collected and
maintained.[4]

4. Treasury function: Best practices for early-stage companies.
Written by
Darcie Lamond
In an Airbase Navigating Uncertainty panel session, we learned how two experienced finance pros
have built treasury functions in their current and past companies. Brett Tighe is SVP of FP&A &
Treasury at Okta (previously Corporate Finance and Strategy at Salesforce), and David Tao is the
Head of Risk, Treasury & Payments at Gusto (previously Head of Treasury and Payments Strategy
at Uber).
Against the backdrop of the challenges and uncertainty of the current business environment, the
picture that emerged from both panelists was one of level-headed stewardship of company funds
and the preservation of capital. The role of Treasury, which primarily focuses on the planning for,
and management of, the cash needs of a business, includes the internal processes and external
banking relationships that facilitate that cash management. The responsibility for these financial
processes includes the management of the financial risks a company is exposed to, from counter
party risk to market risk. In addition, Treasury is often charged with managing the stack of software
tools that are used for accounting automation.
Although small companies don’t typically have a formal treasury department, VC-backed firms in
particular require effective cash management for rapid-paced growth. David pointed out that the
functionsstill occurbutare oftentakenonby accounting(especiallyaccountspayable),payroll,andlegal
teams. Nevertheless, an advantage of viewing these functions through a “treasury lens” is the risk
management ethos that the function brings.
Treasury function and organization.
As a general observation, David pointed out that the treasury function must focus its efforts to
support the business model of the specific company and ensure that Treasury strengthens and
protects the ability of that company to move forward. Every company has a different level of
requirements, stemming from its business model.
Brett described the small team that forms the treasury function at Okta, and the key role that it
plays in the rapid expansion at the company. The group's responsibility includes the forecasting of
cash needs and taking the friction out of payments by managing the banking portal, ensuring
reasonable yield from deposits, and facilitating international expansion.
David explained that at Gusto, where Treasury is responsible for both company cash and customer
cash, the primary goal of the treasury function is risk management and the preservation of capital.
An early mentor of David’s from Yahoo taught him that, as a treasurer, you don’t get promoted
for increasing yield, but you do get fired if you lose capital. The advantage of having a more formal
treasury function is the ability to assess best practices through the treasury lens, understanding
what can be done to strengthen, preserve and protect a company’s capital.

5. Risk management and effective controls.
Brett explained that the treasury function can provide the opportunity to design and implement
processes and controls that enable a growing company to move to the next level. For example, one
of Treasury’s key responsibilities is ensuring that there are effective controls around the movement
of money, including the administration of bank portals, dual approvals, and initiating payments
with a layer of approvals for the admin function itself, i.e., who has authority to set authorities.
David agreed that for companies without a treasury function, providing controls on bank accounts
is clearly the number one priority. Even without a formal Treasurer, managing user permissions is
essential. While multiple people may need to use a banking portal, not everyone needs the
permissions to do everything there. It’s important to set thresholds to limit fraud, while not
restricting flow. Define who can do what, and how much they can do. Be thoughtful about what
you can do in terms of thresholds — you don’t want to make it so cumbersome that it creates
bottlenecks.
Brett emphasized that in order to reduce the opportunities for fraud, levels of authority need to be
set thoughtfully. You may want to give someone authority to make payments, but require dual
authority to set the rules, thus protecting the administrator. The controls that you set up to move
money around and to pay people can ensure that risk is managed effectively, especially in an
environment where cash is currently king.
Brett went on to explain how the treasury function differs in important ways at a public company.
First, and foremost, are the SOC compliance and internal controls. He further explained that you
need to have your house in order, because an auditor will test everything. If you’re doing things
right, the audit process will be easier.
Second, as a public company, you’re probably going to have more money in the bank, and
investing the money is important. The more access you have to capital, the more ways you have
to grow the balance sheet and grow the company.
Third, if Treasury owns insurance (sometimes this resides in the legal team), there are a variety of
responsibilities that include managing D&O insurance, property and casualty, and overall
insurance risk planning. Cybersecurity also impacts all of these functions, and Treasury must play
a role here.
Building a Treasury function.
Building out your Treasury depends on what functions you take on. Does it pull everything
together, or focus on specific areas? Brett offered a list of a few areas that may cause you to add
staff:
 Software stack: How much financial softwaredoyouuse internally,especiallyformanagingcash
flow? If you have one simple system, then one person may be able to handle it, but if you have
multiple systemsin your finance stack, multiple banks,and multiple points of contact, you may
need more staff.

6.  Insurance: If you have a goodinsurance brokerwho knowsyour businesssectorworkingclosely
with your company, they can handle a lot of your insurance work. But, if your insurance broker
doesn’t provide that type of expert support, you may need someone internally just to handle
insurance needs. It’s a lot of paperwork.
 Investments: It’s helpful to consider how much your investment managers are doing for you,
versushow much of your financial andinvestmentmanagementyouchoose to do yourself.The
answer depends on how complex your investment strategy is.
 International growth: This has many differentvariables that aren’t encountered domestically.
Some structuresare simple,while othersare extremelycomplex,oftenincludingamyriadof rules
and large amounts of paperwork. Having this capability in house is important to support
international growth strategies.
To outsource or not to outsource?
David suggested that companies look for efficiencies to outsource the things that do not require
immediate responses. Some things, like managing cash positions, need an immediate line of access
for management and should be handled internally. However, there are things you have to do on a
day-to-day basis that can be outsourced. Treasury does a lot of paperwork that could be done by
others. For example, regular signatory updates need to be executed but it’s not as time critical, so
this type of responsibility can be outsourced.
Cash management and banking relationships.
Both panelists noted that when the economy becomes challenging, cash management becomes
critical. David pointed out that this is especially important at small companies; you have to be sure
you don’t dip to zero. Even at a large company, you can’t let half a billion dollars go out before a
payment for half a billion comes in. You need to manage cash flow on a day-to-day basis, moving
money around as needed. It’s not just a matter of today’s cash position but also the forecast for
cash. Now may be the time to start using tools like real-time payment systems for accounting
automation and payroll.
With respect to smaller companies that don’t have hundreds of millions of dollars in the bank,
Brett pointed out that a good relationship with your bank is crucial. You should be able to pick up
the phone and get the right person straight away, and then get the help you need when you need it.
He suggested some things to look for in a bank: Who can provide technology expertise? Who can
help us build relationships? Will they be there to support your needs in three to five years?
A good example is how well you were served by your bank with respect to PPP provisions. You
want to layer in criteria for what your bank can do for you, not just the cheapest provider or the
highest yield, but understanding what they can deliver in terms of additional products and services
so that your company can grow.
Chasing yield.
In terms of maximizing yield on deposits, our panelists urged companies to negotiate rates on
accounts. Banks are hungry for business, and their offer is not necessarily the final word. You can

7. always respond to their rates by saying “That’s a great first offer.” Remind your bank that there
are other banks who are interested in taking your money. Focus on getting the maximum yield on
your sweep account. And don’t just have one partner.
At the same time, the panelists reiterated that a treasurer isn’t necessarily an economist. Brett
pointed out that it’s important to not try to guess where the market is going to go. Eventually you’ll
be wrong. He also cautioned to not over-rely on the experts, or keep all your assets in a single
institution. Liquidity is king and you need to have access to capital when you’re running a business.
Preserving capital ranks higher than increasing yield. His bottom line is that Treasury is there to
support a software company, not to be an asset manager.
David suggested the threshold for pursuing yield might be to make it relative to the company’s
size. For a large company, earning an extra few hundred thousand dollars might not be worth the
extra work and potential risk, while for a smaller company, that amount could cover the salary of
a critical resource. When asked about longer-term investments to secure higher yields, both
suggested that such a decision should be driven by the cash needs of the company.
IPO readiness.
VC-backed companies in particular have an IPO focus and for the CFO and the Treasury function,
that has implications for how to build systems for cash management. When getting ready to IPO,
you need an operational IPO mindset and take action to: build reporting capabilities, think about
where the next “gotchas” are, add software, features, or processes that will allow you to scale up
quickly so that when the time comes, you’re prepared. In terms of growing the team to handle a
growing Treasury, David said he had a preference to build from internal finance resources and
suggested looking at the skillset you have in-house.
International receipts, payments and transfers.
Both panelists pointed out that moving money around internationally is complicated. There are
currency restrictions, central bank requirements on registering payments, and other processes that
require a lot of attention. David pointed out that there are countries where it can take between six
and twelve months to open an account. The U.S. has a complex set of restrictions on dealing with
some countries. It might be easy to make a single transfer, but what if your business requires a
million transfers a week to a particular country? Then it can get hard. It might even make business
impossible.
Unless a big portion of your revenue is international, Brett suggested leaving the foreign exchange
rate management to the FX traders. Instead of using forward contracts to lock in exchange rates,
he suggested building in conservative forecasts for exchange rate movement, so that there may be
some small upside to your actuals compared to your budget.
Having a formal treasury team in an organization is a luxury enjoyed by larger companies. Smaller
companies must still perform many of the same functions of a treasury department using both
internal and external resources who will have other competing responsibilities. Adopting a
“treasury lens” can help a company think differently about the processes, risks, and opportunities

8. associated with ensuring that a company’s cash needs are met and that investments fit a company’s
overall objectives.