For a small business to thrive, it needs access to funds. It must also minimize risk, optimize its financial structure, and invest its cash wisely to maximize returns. Here’s a brief overview of treasury management, what it entails, and how the right solution can fuel growth for your business.

What is Treasury Management?

Treasury management is one of the most critical functions of a small business. From forecasting cash flow to surveying risk management, it covers all aspects of managing your business’s money.

But too often, it’s relegated to a back-office function that isn’t structured, resourced, and incentivized as well as it could be. Nevertheless, treasury management is crucial for all businesses, particularly smaller businesses with fewer resources than larger companies.

One Solution with Many Benefits

Optimizing your business’s cash flow is the primary goal of treasury management. Here are six ways treasury management can improve your organization’s management of its outflows and inflows and overall cash utilization.

  • Boost cash collection. By streamlining the accounts receivable collection process, your business can enhance cash flow and improve working capital efficiency. Automation reduces costly and time-consuming manual tasks. For instance, offering customers efficient electronic or via lockbox payment methods streamlines the payment process for both parties. It can also improve your company’s days sales outstanding ratio.
  • Improve liquidity management. A disciplined approach to cash flow management makes it easier to respond to unanticipated needs for funds. With more control over your finances and a higher degree of confidence regarding the timing of cash inflows and outflows, it is easier to meet the demand for short-term, unplanned liabilities. 
  • Maximize investment returns. With a better understanding of your cash position, your company can invest its cash reserves in interest-bearing short-term investments, such as money market accounts, certificates of deposit, and sweep accounts. 
  • Optimize financing structure. Understanding your business’s short- and long-term cash flow needs makes identifying and developing the optimal financing strategy easier. This includes determining the mix of debt, equity, and internal cash flows to fund your business, negotiating terms with lenders, and ensuring access to funds at a competitive rate. 
  • Enhance fraud risk management. Every business faces the threat of fraud. Better cash management provides more visibility of cash inflows and outflows. This makes it easier to monitor your account for suspicious activity and respond quickly to unauthorized transactions. Dedicated fraud mitigation tools can also analyze your transactions and provide an additional layer of detection. 
  • Unlock new levels of financial intelligence. Competing in fast-moving and competitive markets requires agility, innovation, and a detailed understanding of your customers’ needs and market trends. Effective treasury management can provide real-time financial intelligence, which allows your company to remain agile and responsive to developing trends.

Financial Health and Operational Efficiency

Treasury management can help small businesses meet short-term obligations and roadmap strategic investments and long-term growth. In addition to helping your business optimize its cash flow, enhance investment returns, and create an effective financial structure, treasury management can mitigate risk.

For small businesses that wish to improve their understanding and approach to cash flow management, treasury management is an essential tool. While each company faces unique circumstances, treasury management can deliver a personalized approach to cash management purpose-built to meet the needs of your business.