Treasury Management Basics for Growing Companies

Treasury management basics come down to one discipline: knowing how much cash the company has, where it is, how much it will have next week and next quarter, and what to do with the surplus or the shortfall. For a growing company, it means moving from checking one balance to running a simple, controlled process for cash visibility, forecasting, funding, investing and risk. This guide sets out the basics, with worked examples, so a mid-sized company can build a treasury function without a large team. It supports cash flow management.

What treasury covers

1. Cash visibility

Start with a single view of all bank accounts, balances and currencies, updated daily. Many growing companies have accounts at several banks, plus processor and marketplace balances, and no one view.

Build a simple daily cash report:

The report shows the difference between ledger and available balances. The treasury lead can then see actual spendable cash. Reconcile the report to the general ledger monthly.

2. Cash forecasting

Visibility tells you today's position. Forecasting tells you the future. Use a 13-week direct forecast for liquidity and a 12-month view for planning. See the 13-week cash flow forecast and cash flow forecasting methods. Measure accuracy and improve. See how to measure and improve cash forecast accuracy.

3. Bank structure

Complexity creates cost and risk. A growing company often needs only:

• An operating account for most payments.
• A payroll account funded just before payroll, which limits exposure.
• A collections account for customer receipts, with a lockbox or merchant settlement.
• A reserve or savings account for surplus cash.
• A foreign currency account if there are significant foreign receipts or payments.

Sweeping surplus balances to the reserve account automatically each day or week reduces idle cash. Review the number of accounts and banks once a year, and close those that no longer serve a purpose.

Bank fees and the cost of idle cash

Idle cash and unnecessary fees are quiet costs.

Suppose the company holds an average of $400,000 in non-interest-bearing operating balances above what it needs. If it could earn 4 percent on that amount in a safe, liquid account, the annual opportunity cost is $400,000 × 0.04 = $16,000. Add bank service fees, which can be reduced through negotiation or by moving to a package that fits your transaction volume. The rate of 4 percent is an assumption for illustration; check current rates and the safety of any account.

4. Investing surplus cash

An investment policy sets the rules. The usual order of priority is safety, liquidity and then yield.

Avoid reaching for yield with illiquid or complex products. The purpose of the reserve is availability when you need it. Check deposit insurance limits and diversify across institutions when balances are large. Seek advice from your bank or advisor on products suited to your situation.

5. Liquidity and funding

Match the funding to the need.

• Committed credit lines for seasonal and short-term gaps.
• Term loans for long-lived investments.
• Equity for growth that cannot be financed by debt.

Maintain a calendar of debt maturities, covenant tests and renewal dates. Start renewal conversations well before expiry, and model covenants under downside scenarios. See working capital loans vs. lines of credit and how lenders evaluate your cash flow and working capital. Keep a standing liquidity target. See how much cash reserve should a business hold?.

6. Payments and controls

Money movement is where errors and fraud happen. Core controls include:

• Segregation of duties: the person who sets up a supplier or changes bank details is not the one who approves or releases payments.
• Dual authorization for payments above a threshold.
• Verification of bank detail changes by calling a known contact.
• Positive pay or similar bank services for checks, if relevant.
• Limited access to online banking, with user-level permissions and regular access reviews.
• Daily reconciliation of cash activity to the ledger, with exceptions investigated.
• Documented payment calendars for payroll, taxes and debt service.

Review these annually, and after any change in people or systems. See accounts payable automation software: a buyer's guide for related controls.

7. Managing financial risk

Interest rate risk

Floating-rate debt rises in cost when rates rise. Estimate the effect: a $1,000,000 floating-rate line with rates up 2 percentage points costs $20,000 more a year ($1,000,000 × 0.02). Decide whether to fix part of the debt, and consider the cost of doing so.

Foreign exchange risk

If you receive or pay in foreign currencies, changes in rates affect cash. A company that buys inventory for 1,000,000 euros, with the euro rising 5 percent against its home currency, pays 5 percent more in home currency: on a $1,100,000 equivalent, that is $55,000. Options include pricing in your home currency, matching receipts and payments in the same currency, forward contracts, and holding foreign currency balances for known payments. Get qualified advice before using hedging instruments, and set a written policy.

Counterparty risk

Spread large balances across institutions of sound standing. Know your deposit insurance limits. Monitor key customers and suppliers whose failure would affect your cash.

8. The treasury calendar

A simple calendar keeps the routine on track.

9. Technology

Spreadsheets and bank portals serve many mid-sized companies at first. As complexity increases, consider cash positioning tools, treasury management systems or integrated finance platforms. Define your requirements before looking at tools. Criteria are covered in cash flow forecasting software.

A one-page treasury policy

A short policy gives the company a common set of rules. A mid-sized company might cover these headings in one or two pages:

A worked example of the value of visibility

Suppose a company holds cash across five accounts and does not see them together. It keeps $250,000 in a payroll account that is funded a month early out of caution, and $120,000 in a collections account that is rarely swept. At the same time, it draws $200,000 on a credit line at 10 percent.

• Idle balances that could have repaid the line: $200,000 of the $370,000 combined
• Interest saved by repaying the line = $200,000 × 0.10 = $20,000 a year (before any lost interest on the cash)

Better visibility and sweeps would have shown that the company did not need to borrow. The savings come with no change in operations. Real situations vary, and some balances must stay for operating or compensating reasons, so check requirements with your bank before moving cash.

10. Link to operations

Treasury works best when it is connected to operations. Sales and credit determine receipts, purchasing and inventory determine payments, and planning drives both. For product companies, the demand plan tells treasury how much to expect to pay suppliers and when, so a stronger plan reduces surprises. See demand planning and inventory optimization. Dashboards bring these links together; see the cash flow dashboard.

Getting started

1. Build the daily cash report.
2. Write a one-page treasury policy covering accounts, authority, minimum cash, investments and controls.
3. Start the 13-week forecast and update it weekly.
4. Review bank accounts and fees.
5. Establish a minimum liquidity target and a calendar of debt and covenant dates.
6. Document payment controls and test them.
7. Assign a treasury owner and a backup.

Common mistakes

• No single view of cash.
• Too many accounts and banks.
• Idle cash earning nothing.
• Chasing yield on reserve cash.
• Weak payment controls.
• Ignoring renewal dates and covenants.
• Hedging without a policy or expertise.
• No backup for key people.

FAQs

What is treasury management?

It is the management of cash, liquidity, funding, investments, banking relationships, payments and financial risk to ensure the company can meet its obligations and use its cash effectively.

Does a mid-sized company need a treasury function?

Yes, though it may be a part of a finance leader's role rather than a separate team. The basics of visibility, forecasting, controls and a liquidity policy matter at any size.

Where should a company keep its reserve cash?

In safe, liquid accounts consistent with its policy, spread across institutions when balances are large. Avoid illiquid or complex products for operating reserves.

How often should I review banking relationships?

At least annually, and when your needs change. Compare fees, services, credit access and the quality of service.

When should a company consider a treasury management system?

When complexity makes manual processes unreliable: multiple banks, entities or currencies, high payment volumes, or a need for stronger controls and reporting.