What does it take to run a successful treasury department? Here are some basic principles that can be used to enhance the impact treasury has inside and outside of the organization.     

Focus on the fundamentals

No treasury function will be successful if it doesn’t know the basics. There are three elements to consider.

• Ensure day-to-day operations are run efficiently: The day-to-day operations are the foundation of what treasury does and if it runs smoothly, then more time can be spent on other strategic issues.
• Manage risks effectively: Managing risk is about understanding what can go wrong and then taking action. Treasury needs visibility into how current exposures impact the company strategy, how a change in company strategy could change the exposures, and what can cause financial distress (and the extent to which it can be managed).
• Treasury must develop its people: With a strong, motivated team, more can be done and it can be done better and quicker, meaning the treasurer will have more time to engage with senior management and other stakeholders. Additionally, the treasurer will be better placed to focus on and provide input into broader corporate strategic issues.

Understand and support the business

The corporate’s business policies can consist of, for example, a focus on growth, which new product to produce or markets to enter, selling and distribution, organization and administration, etc. Treasury needs to understand these and the impact it has on the cash flow and funding requirements, the risk associated with the core business, etc., as it will be used to design relevant treasury and financial strategies.

Ensure the organization is funded at all times

One of the most important treasury activities is to ensure the corporate is funded at all times—this ranges from day-to-day operations to ongoing working capital to major acquisitions. Specifically, treasury needs to determine:

• Efficient cash management and liquidity structures: Cash concentration, notional pooling, etc.
• How much to fund: Cash flow forecasting, input from business units
• When to fund: Pre-fund if window of opportunity, bank funding gives flexibility
• How to fund: Which instrument (bank, capital market) or specialist (structured finance, export credit agencies, securitization, hybrids).

Build strong bank relationships

When managing bank relationships and broader bank strategy, the following can be important drivers:

• Open and transparent relationships should be built. Treat banks fairly, e.g., apply a merit based approach when giving business; give all the banks the same information so that it is clear which ones really understand the corporate’s strategy and come up with the best advice; treat the banks well in the good times, as they will be needed in the bad times; etc. 
• A periodic (e.g., annual) strategic review is important to provide feedback to banks on their performance and to provide guidance to them on the focus areas for treasury over the next 12 months, etc. This will enable banks to focus on their key strengths and will assist in managing their expectations as well.

Expect the unexpected

Situations differ but probably the best way to manage a crisis situation is by having skilled people who have the ability to think on their feet and having good information and credibility with senior management so that they will listen to treasury and then support its recommendations.

Ensure big transactions are well-executed

The probability of successfully managing big transactions will be enhanced by determining what success looks like, identifying all the issues up front, determining who will do what, how to escalate problems, engaging all the stakeholders early, and committing sufficient resources for the duration of the transaction.

It is always sensible to capture the learnings of a completed transaction so that it can not only be used to improve future transactions but also educate the wider treasury team. Choosing the right counterparty to transact with is important, and never blindly trust external advice—always test the assumptions and form your own view first. Additionally, a complex transaction that is well executed under difficult market conditions can put the treasury team on the map—treasury’s value to the organization will be elevated and it can help treasury staff when they move to other senior finance or commercial positions in the organization.

Riaan Bartlett, CTP, is a finance and treasury executive based in Pretoria, South Africa.