Cash & Treasury Management Best Practices: A Comprehensive Guide for Finance Executives

Effective cash and treasury management stands as a cornerstone of corporate financial health. For finance executives, optimising these functions can significantly impact an organisation's liquidity, risk management, and overall financial performance.

This comprehensive guide explores best practices that can enhance your treasury operations and cash management strategies.

Read more: 10 Common Mistakes in Financial Forecasting & How to Avoid Them

Contents

• Strategic Cash Management Framework
• Technology and Infrastructure
• Risk Management Framework
• Governance and Control 

Strategic Cash Management Framework

Cash Flow Forecasting Excellence

Accurate cash flow forecasting serves as the foundation of effective treasury management. Organisations should implement rolling 13-week cash flow forecasts, complemented by longer-term projections.

Modern treasury departments are increasingly leveraging artificial intelligence and machine learning algorithms to enhance forecasting accuracy by identifying patterns and seasonal variations in cash flows. 

To optimise forecasting: 

• Establish clear communication channels between treasury, sales, procurement, and operations teams 

• Implement variance analysis to continuously improve forecast accuracy 

• Utilise statistical models to account for business cycles and seasonal patterns 

• Regular review and refinement of forecasting methodologies based on actual results

Read more: A CFO's Guide to Making Generative A.I. Work

Working Capital Optimisation

Working capital management requires a delicate balance between maintaining sufficient liquidity and avoiding excess cash holdings. Best-in-class organisations focus on: 

• Payment Terms Standardisation: Establish consistent payment terms across suppliers and customers, considering industry standards and company bargaining power. Implement early payment discount programmes where financially advantageous. 
• Inventory Management: Collaborate with operations to optimise inventory levels through improved demand forecasting and supply chain efficiency. Consider vendor-managed inventory programmes for critical supplies. 
• Receivables Management: Implement robust credit policies, efficient billing processes, and automated collection procedures. Consider selective use of supply chain finance or receivables financing programmes to accelerate cash conversion. 

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Technology and Infrastructure 

Banking Structure Optimisation

Modern treasury operations benefit from streamlined banking structures. Key considerations include: 

• Account Rationalisation: Regularly review and consolidate bank accounts to minimise unnecessary operational complexity and reduce bank charges. Implement virtual account structures where appropriate. 
• Cash Pooling: Establish effective physical or notional pooling structures to optimise liquidity management across entities and regions. Consider implementing in-house banking structures for larger organisations.

Read more: Can Your Bank Reconciliation Process Be More Efficient?

Digital Transformation

Embrace treasury management systems (TMS) and banking technology: 

• Implement straight-through processing for payment execution 

• Utilise API connectivity for real-time banking information 

• Adopt robust cybersecurity measures to protect payment systems 

• Consider blockchain solutions for cross-border payments and trade finance 

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Risk Management Framework 

Counterparty Risk Management

Develop comprehensive counterparty risk management strategies: 

• Establish clear counterparty exposure limits 

• Regular monitoring of bank and key customer credit ratings 

• Diversify banking relationships whilst maintaining strategic partnerships 

• Implement contingency funding plans 

Foreign Exchange Risk Management

For organisations with international operations: 

• Establish clear FX hedging policies aligned with business objectives 

• Implement natural hedging strategies where possible 

• Regular review of hedging effectiveness 

• Consider automated FX management solutions for high-volume trading 

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Governance and Control 

Policy Framework

Develop and maintain comprehensive treasury policies: 

• Clear segregation of duties 

• Defined approval hierarchies 

• Regular policy reviews and updates 

• Alignment with broader corporate objectives 

Compliance and Reporting

Establish robust compliance frameworks: 

• Regular internal control reviews 

• Comprehensive audit trails 

• Automated compliance monitoring 

• Regular reporting to board and senior management 

Read more: Make Compliance an Opportunity, Not a Burden

Environmental, Social and Governance (ESG) Considerations

Modern treasury functions increasingly incorporate ESG factors: 

• Green financing initiatives 

• Sustainable investment policies 

• ESG-linked supply chain finance programmes 

• Carbon footprint consideration in banking relationships 

Performance Measurement

Implement comprehensive treasury performance metrics: 

• Cash forecast accuracy 

• Bank fee analysis and optimisation 

• Investment performance versus benchmarks 

• Working capital efficiency ratios 

Continuous Improvement

Maintain focus on ongoing enhancement: 

• Regular benchmark against industry best practices 

• Continuous staff training and development 

• Technology roadmap development and execution 

• Regular stakeholder feedback collection 

Crisis Management and Business Continuity

Develop robust contingency plans: 

• Backup payment execution capabilities 

• Alternative funding sources identification 

• Regular disaster recovery testing 

• Clear escalation procedures 

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Excellence in cash and treasury management requires a holistic approach combining strategic thinking, technological innovation, and robust operational processes. Finance executives must continuously evaluate and enhance their treasury operations to maintain competitive advantage and ensure organisational resilience. 

Success in modern treasury management demands constant vigilance and adaptation to changing market conditions, technological innovations, and regulatory requirements. By following these best practices and regularly reviewing and updating treasury strategies, organisations can optimise their financial operations and contribute significantly to corporate value creation.