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Corporate treasury: What is it, and why do companies need it?
How an automated corporate treasury function can improve business outcomes.
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1 minute
October 11, 2024
Corporate treasury is a corporate finance process aimed at helping businesses optimize their cash reserves for liquidity, security, and yield to boost their bottom line.
Read this guide to learn more about corporate treasury best practices and how busy finance teams, corporate treasurers, and business owners can evaluate and select the right corporate treasury platform for their companies.
Automate your treasury strategy and put your corporate cash to work in U.S. Treasury Bills today.
Corporate treasury provides the resources to fund business operations, meet financial obligations, and support growth.
However, the process can be time-consuming, hence why many organizations hire in-house banking and treasury teams or third parties to oversee their treasury functions.
This may be a luxury for smaller businesses, so it is common for businesses at this stage to use corporate treasury software providers to help them manage liquidity and invest excess cash quickly to get around this challenge.
Every business needs cash to fund operations and future investments, and treasury management can help generate additional funds by maximizing interest income earned on excess cash.
It’s important to note that not every company has a dedicated treasury function, depending on company size:
Whoever is in charge of the treasury function is involved if a business needs to raise capital. Treasury professionals manage asset and liability risk to protect the company’s balance sheet.
An effective corporate treasury function provides several benefits:
Improve a company’s ability to analyze trends with receivables and improve cash flow forecasting to fund business operations properly.
Corporate treasury can minimize the need to fund operations using a line of credit and reduce the need to raise more capital.
Treasury determines the amount of excess cash invested and selects the investment.
The treasury department can reduce the cost of capital by negotiating better terms when capital is raised for business operations or an expansion.
Treasury management makes the process of complying with regulatory requirements easier.
Managing interest rate, currency, and credit risk is more effective with a formal treasury management process.
A treasury analyst may use hedging strategies to reduce risk and purchase insurance to protect company assets and minimize potential liabilities.
For example, they may leverage a T-Bill ladder strategy to generate significant yield on non-operational cash but hedge against shifts in interest rates, which impact the value of T-Bills.
Businesses are better positioned to centralize useful information on cash visibility and investment performance for managers to make more informed decisions.
The corporate treasury function can add even more value as a business grows and becomes more complex.
Larger companies have more assets and liabilities at risk and bigger cash needs.
Even smaller companies have an opportunity to derive value from executing treasury management strategies and fundamentals, but they often have a smaller finance staff with limited bandwidth.
Moreover, unless you have a ten-figure cash reserve, many banks and financial institutions won’t even consider offering treasury services to your business.
Fortunately, Rho Treasury provides the technology and expertise to help startups and SMBs manage treasury functions with less effort, making treasury management available to most businesses.
Financial management focuses on the company’s overall financial stability and performance. These goals are accomplished through budgeting, making operational decisions, and reviewing financial reports.
Financial management initiatives strive to maximize shareholder value over the long term.
Treasury management focuses on cash flow management, optimizing investment returns on available cash, and planning liquidity to fund business operations.
Corporate treasury is responsible for capital preservation, business liquidity, and risk management. Here are some specific tasks performed by the corporate treasury:
In the short term, this task involves matching cash flows with current liability payments to ensure that each liability is paid on time (ensuring liquidity).
Current assets, including accounts receivable and inventory, are converted into cash. Cash flows from current assets are used to pay current liabilities, including accounts payable.
Asset and liability management also requires matching cash flows with long-term liabilities (ensuring solvency).
Managers create plans to fund pension plan contributions and for pension payments to retirees. Businesses also forecast cash needs for principal and interest payments on loans.
Corporate treasury monitors cash flows and bank account balances. Treasury forecasts the amount and timing of excess cash balances that can be invested. This process is critical to effective working capital management. Here are a few common liquidity management activities corporate treasury functions undertake:
Did you know? Rho Treasury helps businesses - that typically wouldn't receive treasury services from a major bank unless they reach a certain revenue threshold – automate a bespoke treasury strategy and balance cash across their Rho operating checking account and Rho Treasury account? This way, Rho helps businesses ensure they have the funds needed to meet their immediate obligations while also earning yield in T-Bills held in your company's name.
If additional capital is needed, the treasury department will negotiate lines of credit and other forms of debt financing. The corporate treasury ensures that the business complies with all debt covenants.
Choose appropriate investments to increase earnings on excess cash while minimizing the risk of loss. Corporate treasury also evaluates the investment time horizon and the tradeoffs between higher yields and longer maturity dates.
Financial professionals assess exposure to currency risk and evaluate the costs and benefits of hedging against currency risk.
Use insurance policies as a tool to reduce risk exposure. This may include commercial property, product liability, and workers’ compensation insurance.
Liquidity management is closely tied to cash management. Liquidity focuses on generating sufficient cash inflows to meet short-term obligations.
Corporate treasury communicates financial strategy and performance to the chief financial officer.
To manage corporate treasury effectively, implement these three best practices:
Systems must be in place that allow all stakeholders to communicate effectively and in real time.
If, for example, senior management is planning an expansion into new markets, they must communicate the cash flow needed and the timing of cash flows.
The same is true with long-term planning for liabilities.
Assume that the company forecasts the dollars needed to fund pension payments and the timing of the payments.
That information must be communicated to the pension’s investment manager to plan liquidations, so interpersonal skills are important for treasury professionals.
Corporate treasury software automates cash flow, liquidity, investments, and risk management.
The best software integrates with banking, accounts payable, expense management, and financial reporting tools.
The software helps automate much of the heavy lifting that goes into successfully executing a corporate treasury strategy, including:
Corporate treasury requires a large investment in time and resources, and businesses need metrics to assess results. Fund transfer pricing (FTP) measures how funding contributes to company profitability.
Businesses have many choices regarding how funds are used, and FTP measures the impact of funding. Managers can consider returns on invested assets (cash, loans, etc.), the cost of capital, and how well assets are matched with liabilities.
Corporate treasury should have a dashboard of metrics for managing tasks. These are some of the most frequently used metrics used by corporate treasury:
Liquidity horizon estimates the time required to sell a financial instrument or hedge a position's market risk.
Liquidity horizon assumes that market conditions are under stress and the asset owner is attempting to sell or hedge the financial instrument without materially affecting market prices.
The stock market is a good example. During extreme volatility, bid and ask prices for a stock can change rapidly, and the number of shares traded can also vary greatly. If an entity with a large stock position places a sell order, the price received is difficult to estimate.
A longer liquidity horizon means that the position is less liqui, and there is a higher risk of price volatility.
Fund transfer pricing (FTP) measures how funding contributes to company profitability, and all funding comes with a cost. A line of credit, for example, has a stated interest rate. You can also consider the opportunity cost of funding one initiative with available cash instead of another.
The corporate treasury department may be managing dozens of different investments. Weighted average yield calculates the yield earned on each investment, the percentage of total invested dollars for each asset, and calculates the average.
Weighted average yield is a metric that corporate treasury can use to assess performance, and treasury must also consider the average maturity on all investments.
Value at risk (VAR) measures the probability of potential losses in an investment portfolio, and VAR is calculated for a specific period. Corporate treasury manages investment risk, and VAR measures and controls investment risk.
VAR metrics can be used to assess the risk of a specific position, a portfolio, or to measure risk firm-wide. For example, a VAR calculation might state that a portfolio has a 4% chance of declining by 5% within the next 30 days.
Rho is a financial operating system that helps businesses boost their profitability. One of the platform’s capabilities is the ability to automate treasury management, helping lean businesses generate yield on their cash reserves while maintaining liquidity and security.
Rho offers a comprehensive set of solutions built into our platform that make it easy for companies to achieve this:
Once onboarded to Rho, clients who invest between $1M and $5M with Rho Treasury can use the service’s standard offering.
Clients with $5M or more portfolios can select a custom investment policy tailored to their business’s unique liquidity and security needs, supported by Rho’s in-house investment team.
Rho's platform then actively adjusts customers’ portfolios of government securities like U.S. Treasuries to earn market rates while monitoring operating account balances and automatically transferring money as needed.
Rho integrates with QuickBooks Online, Oracle NetSuite, Microsoft Dynamics 365 Business Central, and Sage Intacct.
Rho also supports flat-file CSV exporting, so you can automatically tailor transaction categorization to your business needs. Read more about our accounting integrations here.
The Rho platform is free, but the Rho Treasury capability does have a small annual management fee of 0.15%.
Mercury is a financial technology company providing basic banking products and financial services tailored to VC-backed startups.
Mercury offers a few cash management solutions, including Mercury Vault and the option to invest in money market funds.
Mercury offers FDIC-insured checking and savings accounts, Mercury Vault, which offers up to $5M in FDIC deposit insurance, and a treasury solution that allows businesses to invest cash in money market funds with lower-risk, high-liquidity portfolios powered by Vanguard and Morgan Stanley.
Read our Mercury business credit card review for more information about their corporate card solutions for VC-backed startups.
Offers some limited integrations with QuickBooks and other ERPs.
Mercury offers fee-free banking services except for currency exchanges and charges some fees for the administration of investments.
Mercury is great for startup businesses just starting and want access to business banking services built into a technology platform with a good user experience.
As growth-stage startups scale, they may need additional capabilities like multi-entity support, AP automation, and other important financial operations features. In those scenarios, Rho can provide a great alternative option.
Meow is a business banking platform that allows businesses to invest in money market funds. This includes Maximum Checking with up to $125 million in FDIC insurance through partner banks, sweep networks, and U.S. Treasury Bills held in custody at BNY Mellon Pershing.
Meow users can invest using high-yield checking accounts or U.S. Treasury Bills. Users can manage multiple bank accounts using a single login on the platform. Workflows and permissions can be customized, and the solution integrates with payment and credit card processing tools.
Meow integrates with QuickBooks, Xero, NetSuite, and Sage.
Meow requires you to book a sales call for a specific quote.
Aside from being focused primarily on the venture capital and startup market, Meow’s treasury solutions are self-serve, which means you must make investment decisions on your own. If you aren’t comfortable doing that or feel you lack the experience, Meow is likely not a good choice.
Rho offers a seamless platform to manage all cash and spend for companies of any size, and treasury solutions that put your cash to work for you based on a policy you select.
Arc provides startup cash management essentials, including payment management, treasury services, and financing. Arc can manage a company’s operating account, and provide cash reserve account services. Investments are made through BNY Mellon Pershing.
Arc customers can invest in money market funds and treasury bills, not derivatives. Users can set up auto-balancing rules to automatically move funds between operating and treasury accounts.
Customers can also diversify deposit balances across Arc’s banking partnerships and receive up to $5.5 million in FDIC coverage and $500,000 in SIPC insurance.
Arc provides an integration with QuickBooks.
Arc Treasury has no account opening fees, transfer fees, or minimum balance fees, but charges fees for assets under management and other services. Arc requires you to book a sales call for a specific quote.
Arc does not currently offer a mobile app, which may slow down user productivity. Arc’s standard treasury account does not offer automated cash balancing.
Rho offers a fast and reliable platform for treasury management, and the solution is integrated with AP, expense management, and commercial banking. Also, Rho provides a mobile app and does not charge platform fees.
HighRadius is a finance platform that provides tools for managing order-to-cash processes, B2B payments, treasury, and risk management.
The HighRadius Autonomous Treasury solution provides access to all bank accounts on a single platform. The solution offers cash management, cash forecasting, and automated bank reconciliations.
Users can track and manage financial instruments, including investments and debt obligations. Real-time reporting is offered for treasury activity.
Integrations with SAP, Netsuite, Sage Intacct, and Microsoft Dynamics 365.
HighRadius requires you to book a sales call for a specific quote.
HighRadius reviewers mentioned difficulty reaching support, long response times, and difficulty resolving support tickets. Rho offers live, expert support via chat or phone 7 days a week.
HighRadius users have bank integration, ERP integration, and other functionality issues. Rho offers a seamless platform to manage treasury, accounts payable, expenses, and banking. HighRadius charges platform fees, and Rho does not charge platform fees.
While primarily known for its AR automation solutions, Tesorio provides a cash flow management automation solution that helps businesses establish a full view of their treasury operations.
The treasury solution doesn’t provide a way for businesses to invest in investment instruments directly but helps integrate a company’s bank accounts so they have a full picture of cash in one place.
The cash flow management tool aggregates all bank accounts and provides data on a single platform. Users can forecast cash flows, perform scenario planning, and generate reports. Customers can search and filter transactions to find data quickly.
Tesorio has ERP integrations with NetSuite and Sage Intacct.
Tesorio requires you to book a sales call for a specific quote.
Tesorio does not offer an integration that allows excess cash to be transferred into an investment account. The platform has glitches and login issues, which slow down productivity. Finally, Tesorio charges platform fees.
Rho provides bank account and investment account integrations and a reliable treasury management solution with no platform fees.
Treasury Intelligence Solutions (TIS) provides a cloud-based platform for cash flow management, liquidity, and payments.
The CashOptix solution offers cash forecasting, working capital management, and automates bank statement reconciliations. These capabilities are focused on providing organizations with 360-degree visibility and control over their global cash positions, bank account structures, and working capital metrics.
TIS has limited ERP connectivity, allowing bank statements to be uploaded into an ERP. TIS does not offer fully synced ERP integrations.
TIS requires you to book a sales call for a specific quote.
The TIS user interface is difficult to navigate and needs to be updated, and implementing the solution can take time and effort. In addition, TIS does not offer full ERP integrations, and platform fees increase as your business grows.
Rho provides treasury, expense management, banking, and AP within one intuitive platform. Users can implement Rho quickly, and there are no platform fees.
After reviewing the corporate treasury function and several software platforms on the market, think about the features and tools that are most important for your business.
And if you still need help choosing the best corporate treasury software, let's make this easy.
If:
All wrapped up in unbeatable pricing and customer support available 24H Mon-Fri, 10-7pm ET on weekends sounds nice to you, then you should consider Rho.
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Competitive data was collected as of January 3, 2024, and is subject to change or update.
Investment management and advisory services provided by RBB Treasury LLC, an SEC-registered investment adviser. RBB Treasury LLC facilitates investments in securities: investments are not deposits and are not FDIC Insured • Investments are not bank guaranteed, and may lose value. Investment products involve risk and past performance does not guarantee future results.