Explained: The challenges of risk management for your corporate treasury
Your corporate treasury is arguably one of, if not the most important components of your business. It’s essential for not only keeping your business operations running smoothly but encouraging development and furthering your growth.
However, whilst this financial aspect of your business is highly important, it’s not without its many challenges.
Therefore, we’ve put together this article to take you through what your corporate treasury is, what challenges you may face with it, and how you can best overcome them.
What is your corporate treasury?
A corporate treasury has many responsibilities, but the main aim is to effectively manage the company’s financial resources, and ensure they continue to support the business’s operations.
There are various aspects involved in your company’s financial resources – this involves things such as your accounts, investments, cash flow, and much more.
The role of a treasury is to monitor each of these aspects, as well as adjust them where necessary to ensure they’re optimized for the business.
With various payments and transactions occurring each day in your company – whether through expenses, virtual corporate cards, or any other form – it’s important that you’re financially capable of executing them.
To achieve this, you need to ensure you perform risk management for your company’s finances, to help mitigate and control all potential factors which could impact your revenue.
What are the challenges of treasury risk management?
There are many challenges of risk management for your corporate treasury. Below, you’ll find out what some of these are, and more importantly, how you can overcome them:
- Fluctuations in interest and foreign exchange rates
One challenge you might face with your corporate treasury is trying to manage the impacts of changing inflation and foreign exchange rates.
When selling products overseas, there could be changes in the currency exchange rate from the time you complete the sale, to the time payment is made. This can potentially result in you receiving less money than expected.
Also, you may initially borrow money with a low-interest rate – let’s say, for a long-term project – but further down the line, borrowing money is harder with a much higher interest rate.
To navigate these challenges, it’s important to have spend management software in your business. This software will help you track your finances more effectively, so you have more visibility over what you’re spending, and where.
Using this, you can take the right approaches to the changing rates. For example, you can use the software to estimate how much money you’re forecasted to need for a project, and then evaluate whether borrowing money at the current interest rate is a profitable move.
- Liquidity issues
Liquidity is another risk that poses a challenge to your treasury. This refers to how quickly your company can get hold of cash or cash equivalents.
For example, you may need to cover the cost of something short-term, such as employee expenses for example. You’ll therefore need to know how much cash you currently have, and if it can cover the necessary costs.
With spend management software, you’ll have a clear picture of your cash flow, seeing a forecast of what costs are likely to impact your company in the coming period, and how much you’ll need to cover them.
This will help you be more prepared, and build better resilience for any long or short-term costs your company has to manage.
- Fraudulent activity
Another challenge faced with corporate treasury risk management is knowing how to identify and protect your company from fraudulent activity – which currently causes businesses to lose an average of five percent of their revenue each year.
With a large portion of financial processes becoming digital – such as virtual card payments, account transactions, or expense reports, for example – this leaves an opportunity for hackers and scammers to commit fraud.
However, the best way to prevent this is with expert spend management software. With complete visibility over your finances, you’ll constantly be aware of any fraudulent activity taking place.
For instance, with immediate and accurate account reconciliation, you’ll quickly be able to spot any irregularities or suspicious data in your finances – which you can then analyze and address appropriately.
Conclusion
Despite the many challenges of risk management for your corporate treasury, the best solution to optimize your finances is spend management software.
