The role of a treasurer

Corporate Treasury

Corporate treasury refers to treasury activities which are carried out in companies which use financial products to support their main business; usually a trading business. This is in contrast to treasury activities which take place in banks and financial institutions (generally providers of financial products) and in the public sector, and to work carried out by treasury professionals acting as advisers and consultants.

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What does a treasury career involve?

 A career in treasury allows you to work in the heart of the company...there are so many elements to a treasury role; you’ll be able to gain experience in various disciplines and never get bored Tarryn Van Wijk, Treasury Manager, Virgin Management Ltd

Corporate treasury is a profession built on the foundation of a number of financial disciplines, all of which are not only vital in their own right but also support and complement each other. The principal tasks of a treasurer are broadly defined under five core treasury elements. These elements are also areas in which you may specialise and progress your career.

Many companies or organisations will have an employee with the title Treasurer, in much the same way as they may have a Company Secretary or a Financial Controller. Even where no dedicated role exists, someone in the organisation will almost certainly be undertaking the role as a part of their job.

In a company which consists of a large group of international businesses, a treasurer’s role becomes broader, for instance managing centralised treasury operations for the group’s subsidiaries worldwide. In some companies treasurers also have a more general responsibility for risk management. This can include management of the insurance function and sometimes management of a company’s obligations with respect to tax and relationships with the relevant tax authorities. Some treasurers also take part responsibility for the company’s risks arising from pension funds of which it is the sponsor and are also available to help scheme trustees understand some of the issues they have to deal with.

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Capital Markets and Funding

Capital markets and funding covers all the different techniques and sources for raising funding to finance the business, from bank debt to equity finance. There are choices to be made between the different forms of borrowing, their structures, terms and conditions and relative costs. The relationships with lenders and investors will need to be built and the borrower’s business and risk characteristics explained to credit analysts and credit rating agencies.

Once you decide that you need to raise funds for the company’s business, you have to find investors who want to lend you money at a cost you can afford. Capital markets and funding is about discovering the best borrowing rates available and building relationships with people who can help put you in touch with the right investors.

Your job may involve:

• managing an issue of bonds in the markets to raise funds for the next five years;
• arranging to ask your existing shareholders to increase their investment in your company;
• negotiating the terms of a loan or overdraft with your bankers;
• arranging for your bank to send documents to a foreign supplier assuring him that the bank has committed to extend credit to your company to cover the full cost of his shipment;
• working with an equipment company to develop an innovative way to pay for the latest machine your company desperately needs to break into a new market; and,
• dealing with a temporary shortfall of cash by using money owed to you by your customers as security against a short term loan

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Cash and Liquidity Management

Cash and liquidity management is about forecasting the company’s cash needs to run its businesses and then managing the group wide cashflows, short-term borrowings and cash in the most efficient manner to ensure that those cash needs can be met. With the help of IT and communications systems, cash can be pooled internationally. Funding and liquidity needs are intimately connected with understanding and managing working capital, and using the payments and cash reporting systems to best advantage.

A company will always need cash to pay its bills and enter into new business ventures. Often, a lot of the business’ own cash is tied up where the company cannot get to it: materials which have been paid for are in the warehouse still waiting to be turned into saleable goods, your biggest customer hasn’t paid last month’s bill yet or your subsidiary has a lot of cash in their account whilst head office is running short. Cash and liquidity management is about doing everything you can to free up your company’s cash so the business won’t have to borrow more and can make the money it has work harder.

Your job may involve:

• forecasting all cash payments in and out across all areas of your business to alert you to any potential shortfalls or surpluses to be re-invested;
• setting up a central pool of funds for your company group – divisions can borrow more cheaply from one another than from the bank;
• managing the net balance arising through that central pool which will involve money market dealings to borrow to cover any shortfall, or to invest any surplus cash;
• working with your production staff to reduce the delay between materials arriving at the factory and leaving as finished goods; and,
• devising a system to track and automatically chase late payers and charging them interest where necessary

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Corporate Financial Management

Corporate financial management looks at the organisation’s business and financial strategies and seeks to determine the optimum solution to mesh the two together. It answers the fundamental questions as to what assets the business should invest in and what capital structure should be put in place to raise the money to make the investments.

In brief: corporate financial management is all about ensuring that the financial activities of a company fit with the organisation’s business strategy.

 I was always interested in strategy and it is here that a corporate treasurer contributes most. Ganesh Melatur, Assistant Director Finance, Interpol

Your job may involve:

• deciding the best way to fund the company’s operations (either through borrowing from banks or other companies or by issuing bonds or shares);
• ensuring that the company uses the assets available to it to get the best returns;
• organising the business so that the company pays no more tax than it needs to;
• evaluating proposed projects, business combinations and sales of assets to choose those that are most beneficial; and,
• deciding whether the company should return money to shareholders as dividends.

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Risk Management

 Treasurers make a lot of decisions that are designed to protect the company from risk, but we are also making decisions that can generate cash savings as well. Mairi Gemmell, Treasury Front Office Manager, Scottish Power Ltd

Risk management is about understanding what business and financial risks the company is exposed to and considering whether the returns generated are sufficient to justify taking those risks. The risks need to be evaluated and assessed so that decisions can be made on whether to retain them, to employ techniques to mitigate or transfer risk. The underlying risks can be managed to limit risk. They can be hedged with counterbalancing exposures often created through the financial markets, or insurance taken out to protect the company’s financial health.

Preparing for the unexpected is a vital part of the treasurer’s role. First the possible eventualities must be identified and then the company must be placed in a position to survive the worst. This must be done with minimal disruption to the company’s normal business activities. Risk management is about seeing where risks could damage a company’s financial health and putting in place measures to prevent harmful events or if this isn’t possible, to limit the negative impacts they might have.

Your job may involve:

• assessing how the company’s profits might be affected if the cost of borrowing was to rise by half a percent;
• analysing the potential reduction in projected sales of a new product in the US market if the pound sterling was to strengthen, making the item more expensive than its nearest American competitor;
• dealing in the financial markets to hedge the interest rate or foreign exchange risks identified above;
• reviewing all the company’s customers to see which are unreliable payers and might be in financial difficulties;
• deciding which insurance or other financial products to buy to limit any reduction in the company’s profits if industrial action delays the opening of the new headquarters building in Manchester; and,
• working with consultants to plan for the emergency relocation of the business if its current premises are closed due to fire or flood.

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Treasury Operations and Controls

Treasury operations and controls looks at the running of a treasury function, taking in its overall policies, the procedures, staffing, systems and controls, and the relationships with parties within and outside the group.

Once the first four core elements of treasury have been mastered the treasurer faces the task of putting it all together. Whether the treasurer works on their own or with a team it is a complex managerial assignment to carry out all these varied tasks so that they are completed on a unified basis, without disrupting or contradicting each other. For this to happen, the treasurer must be in constant touch with the objectives of the company, be able to balance continually shifting priorities and always be aware of the wider business and financial environment. Managing the treasury function is about being in tune with the aims of your company and its investors, being in control of financial processes and taking responsibility for important but difficult decisions.

Your job may involve:

• working with teams throughout your company to install a new treasury management system which will reduce the company’s payment costs by 20%;
• presenting to the Board on proposed maximum levels of risk which the company should be prepared to suffer in relation to movements in interest and foreign exchange rates;
• implementing control procedures around making payments and devising appropriate internal management reporting of treasury positions and performance;
• briefing senior managers in your company on the advantages and disadvantages of financial products available from the company’s bank to reduce risks arising from a new contract with a Hong Kong copper company;
• conducting appraisal meetings with your staff and advising them of training available;
• reading the latest bulletin on recent changes to accounting and taxation affecting some of the company’s most valuable contracts; and,
• meeting with representatives of an external credit rating agency to explain why the company’s expansion into Europe will be good for business.

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