Treasury Management: Functions and Process


Meaning of Treasury Management

An organization needs to effectively manage and improve the financial infrastructure of its business. The process of framing policies and customizing regulations to meet those outcomes is known as treasury management. There is a huge flow of funds, both externally and internally, within the frameworks of an organization. This, in turn, gives rise to a massive need to supervise these financial transactions to maintain the adequacy of funds and to meet the capital requirements. Steps are also taken to mitigate risks, manage interest rates, and make economically sound decisions for the growth of the business.

Process of Treasury Management

While treasury management oversees plenty of financial activities, the overall course of action remains the same throughout all activities.


The first step is to estimate and map out the objective of the business. The business may be planning on opting for the route of a merger or it may be looking to diversify its portfolio. The final aim must be determined as best as possible. The possible strategies that can be relied upon to meet the requirements must be evaluated and reviewed carefully. The most relevant approach is to be selected out of the alternatives for further policy formulation.

Policy Formulation

Now that a strategy has been agreed upon, the policies are to be framed accordingly. It must be ensured that the required funds are available along with the legal authority to take the next step forward. A major element in this step is the calculation and mitigation of risk via hedging or insurance schemes. Finally, it is to be confirmed that a competent structure of accountability and control is in order for a smooth process of implementation.


The relevant routes of communication must ensure that the necessary details of the policy framework are communicated to the applicable departments. A proper timeline is to be conveyed for each step that is to be taken as per the policy guidelines.


After the implementation of the plan, frequent assessments of the effectiveness of the policy are to be conducted. This is crucial to detect any potential risks and also to measure any improvements achieved by the plan. Any difficulties are to be noted down and a fresh phase of planning must arise if needed. Thus, completing the final phase of the process of treasury management to begin anew.

Functions of Treasury Management

The functions performed by the treasury department ensure the smooth functioning of a business. It also injects the stakeholders of the organization with confidence in the capabilities of the business.

Working Capital Management

Working capital is the surplus liquidity left with a business to meet its daily operating expenses after meeting its short-term liabilities. Inconsistently meeting the working capital requirements is a strong predictor of future financial distress. Maintenance of cash reserves, balancing short-term payables and receivables, and inventory management are some of the key elements of working capital management.


Treasury management focuses on short-term investments to add to the income of a business and meet its liquidity. Therefore, low-risk investment vehicles are encouraged over volatile but lucrative investment opportunities. The nature of such an investment also plays a role in the final consideration. For example, a moderate-risk government bond is preferred over a low-risk real estate investment.

Risk Management

Interest rate fluctuations, data frauds, and bad debts are some of the probable risks that a business has to accommodate during its regular operations. Risk management, to a large extent, can lessen these issues by identifying the nature of these risks. After careful consideration, certain precautionary measures are to be undertaken. Some of these measures are regular auditing, record keeping, insurance plans, provisions for contingent liabilities and losses, firewall protection, and hedging.


For a business’s short-term transactions, the treasury department has to regularly maintain the company’s bank statements. A  consistent relationship is also to be built with them. Along with that, the company also heavily relies on the services of a bank to meet its liquidity needs. Banks also assist in creating an investment portfolio as per the market trends. They help businesses with foreign exchange transactions. Moreover, banks usually have a separate treasury department of their own to serve their clients.

Payroll Management

The employees of any organization need to be paid systematically. Their tax provisions, pension schemes, and other relevant employee benefits are also to be kept in mind. There has recently been an increase in the scope of payroll management. Hence, a capable treasury department can implement an apt system of recording and processing payments. Especially, by aligning them with the financial management process of the business.