Building a resilient treasury function: Best practices for crisis management

Authored by Vinod A N, General Manager of South Indian Bank

In a fast-paced business environment, organisations must manage cash, liquidity, and risks efficiently to thrive amidst market dynamics as well as financial stability, regulatory compliance, optimal returns, and safeguards against cybersecurity threats.

Treasury Management plays the all-important role of preventing businesses from running into huge losses by monitoring and handling the financial aspects of the business. Treasury operations, such as risk mitigation, fraud detection, financial reporting, and automation of basic economic activities like payroll services, are vital components of the system and have evolved into an internal advisor to the business, contributing to corporate strategic planning.

However, in any business, a crisis can occur at any time and for any number of reasons putting treasury management at risk which can also be a threat to the very existence of the business. There is never a perfect way to prepare for a crisis, but one can surely prepare for these situations with proper planning and having SOPs and escalation processes in place to mitigate the crisis.

All businesses have five major treasury management risks that they can face: Operational Risk, Technology Risk, Liquidity Risk, Third-party Risk, and People Risk. Every business owner or management team needs to bear in mind that the treasury functions of the organization become larger and more complex as the organisation grows. In this article, we have tried to showcase the nature of the risks for each kind of organisation and the steps they need to take to safeguard themselves:

OPERATIONS RISKS

Promoters and founders of organisations are busy running the business and bill payments and collections typically tend to take a back seat and are done as and when they have time, and more often than not, done manually. Businesses need to deploy technology solutions to automate processes, prepare contingency plans in the event of a glitch in the automated processes, devise SOPs for every process and have in place a strong reporting process for liquidity forecasting, and monitoring.

TECHNOLOGY RISKS

A common issue that one witnesses is that most business owners equate technology risks to cyberattacks and fraud schemes while ignoring an equally if not more important aspect i.e. data integrity. It is a common practice to outsource parts of business operations to more than one service provider, but there must be in-depth research done on the systems, processes and employees of the partners to ensure that the integrity of your data is protected in every possible manner.

LIQUIDITY RISK

Availability of funds and unrestricted access to funds is critical to the survival of any business. Anyone managing company money should cover three key points: know where your funds are, ensure easy access to the funds, and know the funds are being invested and managed. No matter your company’s size, you need to ensure that you have rationalized your bank account structures, and automated cash positioning processes, know your cash position and limit account access to appropriate people. This can be done simply by controlling who has access to accounts and using online banking tools for reconciliation, fraud prevention and forecasting.

THIRD-PARTY RISK

Startups, typically, do not have in-house procurement teams to evaluate potential vendors and end up using third-party vendors to help manage several operations. However, this also increases the exposure risk for your own data. Therefore, it is extremely important to learn more about a vendor’s security protocols and resiliency plans. The goal is to understand your risks—and how to mitigate them—so you can make informed decisions.

PEOPLE RISK

The size of a company will typically dictate the number of people available for various functions within the organisation and small size companies have few employees. Promoters / Founders, irrespective of the size of the company should, ensure that the cash management is well-staffed so that there is proper backup, a strong contingency plan, a well-defined SOP and an Escalation Matrix to be followed by the cash management team during a crisis.

Conclusion

Building a resilient treasury function requires a multifaceted approach that encompasses risk management, liquidity management, technology adoption, governance, crisis planning, and people management, and these change depending on whether the organisation is a Start-up or Growing Company or a Mature Organisation. However, these best practices can help organisations enhance their ability to navigate crises and emerge stronger in the face of adversity.

Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.