1.1 The Role of Treasury
The treasury function’s role is driven by the underlying business, making it imperative that treasury understands and supports the business . According to the Corporate Finance Institute, treasury is “the circulatory system of a company’s financial health,” ensuring that cash is flowing smoothly, protecting against financial turbulence, and directing capital to fuel growth . The treasury function fundamentally rests on three main pillars: managing liquidity, strategically managing risk, and making smart decisions about capital allocation .
1.2 Core Objectives of a Treasury Department
The ACT Certificate in Treasury syllabus identifies four primary objectives of a treasury department :
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Ensuring liquidity: Maintaining sufficient cash to meet obligations as they fall due. Liquidity is a company’s ability to meet short-term financial obligations on time, including paying employees, settling supplier invoices, and paying business rates . Maintaining good liquidity helps maintain business continuity, invest in growth opportunities, and develop trust and credibility .
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Managing appropriate funding: Securing financing for the organisation’s operations and growth.
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Identifying and managing financial risks: Proactively managing risks such as foreign exchange, interest rate, and credit risk. Treasury teams evaluate potential risks when considering where to hold or invest excess cash .
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Developing sound financial practice: Promoting a culture of robust financial discipline, ensuring adherence to policies, controls, and ethical standards.
1.3 The Link Between Business and Treasury
An understanding of the key drivers of the business and of the organisation’s and investors’ risk appetites enables treasury to develop appropriate policies and procedures to help the organisation reach its objectives . The modern treasurer is a strategic partner to the business, with 68% of treasury professionals now describing treasury as a “strategic partner” to the business, up sharply from 51% two years ago .