Treasury & cash

From risk to reward

Whether they're driven by regulatory compliance or complex financial markets, foreign currency issues or commodity price volatility, access to cash or cost of funding treasury, financial risks exist in every company. And that's before considering the effects of destabilising events in world or domestic markets or complex tranactions. So how do you get cash to the right place at the right time, in the right currency in an efficient and controlled manner when the landscape is shifting around you?

Types of treasury risk
Treasury risk and activities are spread right across your business. Getting it right will create value, getting it wrong could be very expensive; and it can get personal too.

FX / Commodities - volatility causes uncertainty over cash flow, tax liabilities and reported results.

Refinancing and cash management - cash concentration mechanism, in-house banking, payment factories and adequate capital structure are key to reduce potentially very expensive cost of funding and ensure survival in illiquid capital and debt markets.

Governance - the potential breaching of banking covenants, fraud, and regulatory oversights can all lead to immediate financial cost and long-term reputational loss.

Personal risks - increased scrutiny of Treasury's day-to-day activities can raise questions over the value it brings to the business and add to the risks of dismissal.

Getting it right
Getting the right information is key. Do you have the necessary data to assess your financial risks accurately? If you do then can you decide on an acceptable risk profile and remove unacceptable levels of volatility from reported results. How exposed are you to FX markets? Do you rely on imported or exported goods or services?

Quality data also means accurate forecasting - the key to better cash and financial risk management. It helps you ensure your cash is not idle and also helps cutting costs of borrowing. Understanding the implications of some inputs can be notoriously hard, so simplifying your financial instruments is another way of reducing risk.

When it comes to refinancing, it is vital to understand banking covenants and other conditions. Have you secured the lowest cost of funds by sacrificing reasonable covenant constraints? Are debt facilities due to expire in the next 2 years? To guard against destabilising shocks you'll need to assess market conditions constantly and identify funding alternatives where you need them.

Upgrade your Treasury management systems and optimise the tax and accounting implications of all transactions and your challenges will start looking like opportunities.