Chapter 1 Introduction: the treasury’s role in managing working capital
This book is targeted at all companies,
whether they have significant international
trade or not. Some companies will be large
or complex enough to have a dedicated
treasury department. Others may simply
have a treasurer, whether full or part-
time. Others still may not operate with
a named treasury staff at all. However,
all companies, large or small, have to
perform the core treasury functions: making
sure the company has sufficient cash,
denominated in the appropriate currency, in
the right place and in time to meet all of its
various obligations.
At the same time, all companies need to
generate cash from one source or another
in order to set up and remain in business.
The job titles of the people responsible for
this will vary from company to company, but
essentially there are two main sources of
finance: cash received as the proceeds of
sales, and finance arranged to support the
operation of the business, whether in the
form of shareholder equity, bank loans and
overdrafts, or non-bank originated finance.
For the purposes of this book we will refer
to the treasurer and the treasury department
when referring to these functions, although
in many companies it may be someone with
a different title who has the responsibility of
performing these tasks.
Changing role of the treasury
In the past the treasurer’s role in some
cases was predominantly a reactive one.
The treasurer took control of incoming
cash when it was received by the accounts
receivable team, and arranged for cash to be
available to meet payment obligations to, for
example, existing suppliers, when advised
by accounts payable. The treasurer played a
more active role when arranging finance to
support the business or when investing any
short-term surplus cash.
In this scenario the treasurer had very
little direct input into the wider running of the
business. There was some opportunity to use
cash efficiently, perhaps by using techniques
such as a lockbox designed to speed the
collection of payments.
The level of sophistication within treasury
departments varied significantly. Some
treasurers used cash forecasts to reduce the
level of idle balances in bank accounts and
to minimise the level of external borrowing
required or maximise the level of surplus
cash available for investment.
Over time this role has changed and
broadened, with a focus on risk management
becoming more central to the role of
treasury. The core function described above
remains the same, but the tools available to
support the treasurer are now much more
sophisticated. Information from all sources
is much more readily available – companies
of all sizes have access to end-of-day cash
balances and transaction reports, with many
more having access to data in real time.
Banks increasingly offer products which allow
companies to use this information to pool
cash and minimise external borrowing or
maximise overnight investment.
At the same time, information about
activities within the wider company is