It is difficult to identify and define a set of standard responsibilities for Corporate Treasurers, as there are many factors that will shape the responsibilities of the Treasurer. i.e organization size, setup, sophistication, location, industry, etc.
However, from the numerous surveys, we can identify a few common areas and summarise the common responsibilities of the Corporate Treasurer in most organizations.
Responsibility #1: Working Capital, Cash & Liquidity Management
When Treasurers are asked to list their most important tasks, the usual topics listed are,
- Enhance Liquidity Risk Management
- Optimize Working Capital
- Improve Cash Flow Forecasting and Visibility of Cash
- Improve Cash Conversion Cycle
- Optimize Inventory Levels
“Cash is king.” Working capital, cash and liquidity management ranks as one of the most important tasks of a treasurer.
Ensuring the organization’s liquidity and smooth cash flow is of paramount importance for corporate treasury. As Richard Branson emphasizes, “Never take your eyes off the cash flow because it is the life blood of the business.”
Every business needs cash for their operating, financing, investing and other functions. And it is one of the most basic roles for a Treasurer to be able to,
- Know and Measure the Current Cash Balances
- Ensure Liquidity for Daily Operations
- Accurately Forecast the Future Cash flows
- Deploy Efficient Cash Management Setups
- Enhance Yields on Excess Cash Balances
In order to optimize the working capital, the Treasurer must be able to evaluate and manage the size of the inventory levels.
Depending on the type of business, Inventory can be in the form of actual physical finished goods like boxes of biscuits to semi-finished stocks like vehicle parts awaiting full assembly.
Other factors like payment terms, supplier finance and logistics chain management do affect working capital. And normally, Treasurers are expected to manage or give advice on these too.
Responsibility #2: Financial Markets Risks Management
Financial Markets Risks are,
- Foreign Exchange Risks from Volatility in currency prices - when the organization is exposed to numerous currencies due to cross border trade flows, income and liabilities i.e FMCG, Export/Import businesses.
- Interest Rates Risks from Volatility in interest rates - when the organization relies on external borrowing and funding i.e Infrastructure, Asset Heavy industries.
- Commodities Risks from Volatility in commodities prices - when the organization is dependent or engaged in commodities related businesses i.e Airlines, Commodities trading houses.
- Equity Risks from Volatility in stock prices - when the organization manages its pension funds, engages in stock buyback.
- Market Liquidity Risks from availability of Liquidity in the market - universal risks affecting all organisations across different asset classes.
It is important not to confuse Financial Markets Risks with Enterprise Risks.
Financial Markets Risks arise from the usage of instruments traded in Financial Markets, while Enterprise Risks originate from factors outside Financial Markets, i.e reputation risks (loss of consumer confidence), legal risks (infringement of copyrights), operational risks (fraud, payment failure).
Responsibility #3: Mid and Long Term Funding (Periods More Than 1 Year)
Funding & Capital Management, Corporate Finance, Asset Liability Management (ALM) or Debt Capital Market are common names for the department responsible for funding in different organisations.
There are instances where the funding team might be reporting to the Group CFO instead of the Group Treasurer.
In general, funding is one of the most important responsibilities of the Treasurer and quite often attracts close attention from the Senior Management.
Mid and Long term funding should not be confused with Cash and Liquidity management, though in theory, they can refer to the similar areas and scope.
In most setups, Cash and Liquidity are more short term in nature - up to 1 year, while Mid and Long Term funding tend to look further - often for periods more than 1 year.
The skills and knowledge required in the two departments differs, usually more in-depth understanding and specialist capabilities are required for the latter. i.e legal knowledge, loan clauses, bonds issuance, country regulations, tax matters, etc.
The common Funding targets for a Treasurer are,
- Ensure proper and adequate capital and funding
- Efficient and sound capital structure
- Reduction in borrowing and funding costs
- Diversification of funding sources
Responsibility #4: Treasury Risks Controls & Operations
As the organization grows and its business expands, the level of complexity tends to increase as well. The normal Finance and Accounting reports are not designed and not comprehensive to capture and evaluate Treasury Risks.
It is crucial and essential for any organization to have a set of robust procedures and good reporting system to data mine, generate reports and analyze Treasury Risks.
Depending on the sophistication and size of the setups, it might be a dedicated department solely tasked for Risks Control to a responsibility assigned to Treasury staff who is managing other duties.
As for Treasury Operations, in recent years, it is popular to outsource such “back office” functions to shared service centres or even external service providers. Such outsourcing or centralization of operational roles allows organisations to benefit from economies of scale, eliminate duplicate functions and headcounts in different locations.
This frees up resources and time for the Treasury departments to focus on strategic issues and undertake more value adding work. Depending on the organization, such share service centres might be reporting to other departments instead of the Treasurer.
And in smaller organisations, it might not be economical to have such a centralised setup. In such situation, the Treasury Operations might be sitting within the Treasury Department or in some cases are outsourced to the Finance Department.
With the advancement of technology and increasing innovations in disruptive Fintech, Treasury Operations might be digitalized or replaced by artificial intelligence or systems.
Although, there are no known wide scale implementations or digitalization of human operations with systems, we are witnessing an increment of interests and exploration into possible options. The Banking industry has already started replacing some operations with robots or systems.
Responsibility #5: Treasury Systems & Data Analytics
Treasury Management Systems (TMS) are gaining more acceptance and recognition for their value and efficiency among corporate treasuries.
In the past, such systems are normally used in Banks and large corporate treasuries as the implementation costs were prohibitive and access were constrained by technical capabilities.
Now with the advancement in internet connectivity, cloud solutions and huge decrease in setup costs, it is an integral part of any Treasurer’s analysis toolkit.
Treasury Management Systems are installed to:
- Integrate different ERP systems and databases to allow efficient report generation
- Allow connectivity with Banks for payments, statements
- Allow direct access to SWIFT networks for payments, statements
- Enable advanced and sophisticated Treasury Risks Analysis
- Integrate Dealing, Reporting and Accounting functionality with one system
We hope in this short summary, you have better understood a broad overview of a typical setup of a corporate treasury and the roles and responsibilities of corporate treasuries in most organisations.