Corporate treasurer: the real job description

Recently I got a question about the function of a treasurer. So let’s take 5 minutes to have a closer look at the typical task list of this financial officer.

The main task of a treasurer will be to manage liquidity risk. This sounds too basic to be true, but a company, even of considerable size and even when very profitable, can simply run out of cash for a period of time. The cash outflows (investments, salaries etc) exceed the cash inflows (customer invoices being paid). This can happen with an unexpected payment (lawsuit, fine, severance payment) or when a big customer delays payment for some reason.

Secondarily, a treasurer may be asked to manage the cash. In the typical situation where a company sits on an excess of cash, it may be a good idea to invest the cash in some short term funds with a return. Of course the fund will need to be risk free or almost risk free, and that judgement is up to the treasurer to make.

Thirdly, if a company has international operations, currency risk can hit the company’s earnings hard. The treasurer is uniquely placed to design hedges against fluctuating currencies. It is quite possible he actively steers the planned cash in- and outflows in a certain currency to coincide. Also, he can buy large positions in a currency today to eliminate the time risk until the real cash inflow comes.

In real life, there are a few more things worth knowing:

  1. Cash only: as opposed to a controller, a treasurer will focus on the cash flow only. So no accrual accounting, depreciations or asset revaluations for him! Added to that, financial and accounting knowledge does not need to be as deep as with eg. a controller or credit manager.
  2. Short to mid term future: a treasurer is no analyst. He will not be interested in historical data. His only focus is on the future. While the financing strategy is the realm of the CFO, the treasurer will have a time frame of not much more than 6 months. Apart from a few highlights in the corporate annual agenda, he is not interested in the budget as such (too long term). In my experience, it is often even limited to 6 weeks-3 months.
  3. It’s very corporate. With that I mean, it can be very remote from the day-to-day company reality. You are operating in a very specific role, usually alone, often with opposing interests than most of your colleagues. Eg. a sales manager will not understand if you object to business expansion in a certain region as you will be the only one understanding the cash drain this will cause.
  4. Technical, but communications is key! Being the chief treasurer obviously brings a huge responsibility. Technical knowledge, including on financial derivatives, is required. But a good cashflow can only be planned with the help of others, especially A/R collectors and controllers. By regularly connecting with them the treasurer will have to get an idea of what is going out in the business side of things.
  5. Not everyone does it: one would be surprised at the number of sizeable companies that lack a treasurer. Usually this means that a controller, internal auditor or the CFO takes that responsibility on him. It would be irresponsible to ignore the task for a long term, because running out of cash, even temporarily, can be detrimental to a company. No matter how profitable its sales and how much it grows, lack of cash for a few weeks can put you out of business, or saddle you with a bank loan with strangling interest costs.

Thanks for reading!


About curiousmanager

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