What is Treasury Management? A Guide for UK Companies Trading Overseas

Effective treasury management is a vital part of managing a company’s finances.

But it can be complex, covering everything from day-to-day cashflow right through to strategic financial decision making. And then there’s the added complications involved in trading overseas and making international transactions.

But what is treasury management exactly, and what does it encompass? Read on to find out everything you need to know, including some info on treasury management services that can make life easier.

We’ll also show you another valuable tool - the Wise Business account, ideal for UK companies looking to manage finances across multiple currencies.

💡Learn more about Wise Business

What is treasury management?

Treasury management is a term used to describe the processes used to manage a company’s financial resources.

It focuses on managing the organisation’s liquidity, including cash, investments and debt. But it also encompasses financial planning, budgeting and analysis, to help the company meet its goals and objectives, and ensure the long-term financial stability of the business.

A large number of different activities fall under the treasury management umbrella, including cash flow forecasting, establishing and maintaining credit lines, and optimising investment returns.

Effective treasury management is so important because it helps an organisation manage and mitigate risks. These can be operational and reputational, as well as financial. With forward planning, businesses can take steps to cushion the blow of unexpected financial setbacks in the future.

How does treasury management work? Treasury functions

A treasury management team will typically manage a wide range of different activities and processes. This includes:

• Financial risk management - using advanced tools, reports and analysis to identify areas of potential financial vulnerability for the organisation. Through continuous analysis, it’s possible to know exactly what the company’s risk exposure is at any given point in time.
• Liquidity management - ensuring the business is able to meet its financial obligations, including paying suppliers, staff and shareholders.
• Cash flow forecasting - carefully managing the timing of scheduled payments and income. For example, adjusting the sequencing of payments to fall in a particular part of the month, to maximise cash flow. This also involves running models of different cash projection scenarios, to prepare for all possibilities.
• Trade finance - managing trade between the organisation and third parties, including limiting risks with international trade.
• Corporate finance - providing relevant financial data and analysis to inform investment decisions, to help the company meet its growth objectives.

International treasury management

For multinational organisations, treasury management becomes more complex - but perhaps even more critical.

International treasury management involves controlling global payment processes and managing trade between global third parties.

Another key activity is foreign exchange (FX) risk management. FX risk occurs when global companies do business in multiple currencies, where exchange rate fluctuations can potentially lead to significant losses.

For example, a business may buy supplies from one country, have its products manufactured in another (involving additional labour and other associated costs) and then sell the finished goods to clients in a different part of the world. Each part of this process will involve transactions in different currencies. The organisation needs to make sure it is getting the most favourable exchange rate for every transaction, which can require intensive management.

One way this can be simplified is with a multi-currency solution, such as the Wise Business account. With guaranteed mid-market exchange rates, low fees and a wide range of tools for managing finances in 40+ currencies, Wise can make international treasury management easier.

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multi-currency account 🌎

Treasury management services

Many of the processes we’ve looked at so far are extremely time-consuming, as well as requiring considerable skill, resources, tools and software.

To enable treasurement management teams to work more efficiently, there are a range of specialist tools and services available. These can automate laborious processes, speed things up and free up staff time for more value-adding tasks. It’s a fantastic way to boost productivity and efficiency within this business-critical department.

Examples of tools used by treasury management services include:

• Automated payments and streamlined financial processes
• Early fraud identification tools
• Consolidation of financial information
• Investment decision planning and funding.

Difference between treasury management and cash management

Treasury management focuses on the long-term objective of maximising the company’s profitability. This can include activities like maximising investment returns, mitigating FX risk and running cash flow projections and forecasts.

Cash management has its focus in the short–term, ensuring the day-to-day running of the business. This includes making sure the business has enough money to meet its obligations, such as paying its bills, staff and suppliers.

International treasury management with Wise Business multi-currency account

The Wise Business account is a hugely useful tool for companies that trade internationally, buy goods or employ people from other countries.

Wise aims to make business banking and international treasury management simpler. It’s a powerful online account, with no monthly subscription fees.

Features include:

• Hold and manage money in 40+ currencies
• Local account details for 9 major currencies
• International payments to 160+ countries for low fees and mid-market exchange rate
• Employee expense cards - with no foreign transaction fees for spending in 150+ countries, plus spending limit controls and 0.5% cashback
• API integration with business and accounting tools
• Earn a return on the money you hold on GBP, EUR and USD balances¹
• Bulk payments - batch pay up to 1,000 people at once
• Bespoke permission levels to control team access.

Wise is UK regulated, and uses sophisticated security measures to keep your business details and finances safe.

Get started with Wise Business 🚀

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After reading this guide, you should have a better idea of what treasury management is and how it works. We’ve looked at the kinds of activities and processes that treasury management teams typically handle, including those required when companies trade internationally.

Treasury management can be managed in-house, but it is time and resource intensive. Many businesses choose to outsource this kind of work, or make use of treasury management tools and services to lighten the load. But it’s a decision that each organisation will need to make based on their own needs and requirements.

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Sources:

1. With Wise Interest, you can get a 4.82% variable rate on your GBP balance held in your Wise Business multi-currency account. Capital at risk. Current rates do not guarantee future growth.Variable rate is based on 7 day performance as of 10 Aug 2023. This fund has returned an 0.93% annual average over the last 5 years, excluding Wise and fund manager fees. See full 5 year past performance of funds

Sources last checked on date: 20-Aug-2023