An Overview of Treasury Management Compiled by: Khalid Sultan Anjum

M.S: LLB: DAIBP & etc.

IBF- BZU Multan
Treasury Lecture Series 01
Treasury Management can be referred to the planning, organizing ,controlling holding
funds and working capital of the enterprise in order to make the best possible use of the
funds, maintain firm’s liquidity, reduce the overall cost of funds, and mitigate(reduce)
operational and financial risk. It covers the areas of working capital management,
currency/Cash management, corporate finance and financial risk management.
Simply , treasury management is the management of all financial affairs of the business such as
raising funds for the business from various sources, currency management, cash flows and
various strategies and procedures of corporate finance.
Functions of Treasury Management

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Functions of Treasury Management

The significant core functions of a corporate treasury department include:

1:Cash 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. In addition to dealing with payment transactions; cash management also
includes planning, account organization, cash flow monitoring, managing bank accounts,
electronic banking, pooling and netting as well as the functions of in-house banks.

Following are the key features of Cash management:

 Cash management is the process of managing cash inflows and outflows.
 There are many cash management considerations and solutions available in the financial
marketplace for both individuals and businesses.
 For businesses, the cash flow statement is a central component of cash flow management.
2: Liquidity management is a concept broadly describing a company's ability to meet
financial obligations when they become due for payment, such as payment to suppliers,
employees, creditors, etc.And to do so, cash flow analysis and working capital management
act as the most important tool for treasury management, to achieve its strategic
goals.Liquidity management can be challenging as it is impacted by revenue and cost
generating activities, capital and dividend plans, and tax strategies.
3: Availability of funds in adequate quantity and at the right time: The treasury manager
has to ensure that the funds are available with the organization in sufficient quantity, i.e.
neither be more nor less, to fulfil the day to day cash requirement for the smooth functioning
of the enterprise.Further, timely availability of funds also smoothens the firm’s operations,
resulting in the certainty as to the amount of inflows available with the company at a
particular point in time.
4:Deployment of funds in adequate quantity and at the right time: The deployment of funds
has to be done in right quantity such as the acquisition of fixed assets, purchase of raw material,
payment of expenses like rent, salary, bills, interest and so forth. For this purpose, the treasury

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manager has to keep an eye on all receipts of funds and the application thereof.Further, the funds
must be available at the time of need, which may be different for different firms and also for the
purpose for which they are used. The period may differ from a week to month when it comes to
acquisition of the fixed assets and two to three days in case of working capital requirement.
5. Optimum utilization of resources: Resource management is the process of– how to use
available resources efficiently, effectively and economically. Large organizations usually have a
defined corporate resource management process which mainly guarantees that resources are
never over-allocated across multiple projects.
Treasury Management also aims at ensuring the effective utilization of the firm’s resources, to
reduce the operating costs and also prevent liquidity shortage in the coming time. The goal is to
achieve 100% utilization but that is very unlikely, when weighted by important metrics and
subject to constraints, for example: meeting a minimum service level, but otherwise
minimizing cost. The principle is to invest in resources as stored capabilities, then set free the
capabilities as demanded.
6: Risk Management:
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. 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 gain. 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.
Treasurers are typically responsible for managing:
 Liquidity Risk is the risk that the company is unable to fund itself or is unable to meet its
obligations;
 Market Risk (or price risk) is the risk that changes in market prices (typically foreign
exchange, interest rates, commodities) cause losses to the business;
 Credit Risk is the risk that a counter party default causes loss to the business;
 Operational Risk is the risk that fraud or error cause losses to the business.