Corporate treasury: What is it, and why do companies need it?

How an automated corporate treasury function can improve business outcomes.
Author
Ken Boyd
Updated:
February 23, 2024
Writer
Reviewed by
Updated:
February 23, 2024

Corporate treasury is a corporate finance process aimed at helping businesses optimize their cash reserves for liquidity, security, and yield to boost their bottom line. 

Read this guide to learn more about corporate treasury best practices and how busy finance teams, corporate treasurers, and business owners can evaluate and select the right corporate treasury platform for their companies.

Generate up to {treasury-rate}% with Rho Prime Treasury.

Automate your treasury strategy and put your corporate cash to work in U.S. Treasury Bills today.

––
rating

What is corporate treasury?

Corporate treasury provides the resources to fund business operations, meet financial obligations, and support growth. 

However, the process can be time-consuming, hence why many organizations hire in-house banking and treasury teams or third parties to oversee their treasury functions. 

This may be a luxury for smaller businesses, so it is common for businesses at this stage to use corporate treasury software providers to help them manage liquidity and invest excess cash quickly to get around this challenge. 

What type of business benefits from corporate treasury?

Every business needs cash to fund operations and future investments, and treasury management can help generate additional funds by maximizing interest income earned on excess cash.

It’s important to note that not every company has a dedicated treasury function, depending on company size: 

  • Larger organizations typically have dedicated treasury departments or professionals acting as cash custodians, monitoring and forecasting cash flows and managing liquidity. 
  • Smaller businesses often rely on fractional CFOs or small finance staff or may not have the capacity to fully implement treasury management strategies and instead rely on treasury automation solutions to take advantage of a new opportunities to earn yield on excess cash.

Whoever is in charge of the treasury function is involved if a business needs to raise capital. Treasury professionals manage asset and liability risk to protect the company’s balance sheet.

Benefits of the corporate treasury function

An effective corporate treasury function provides several benefits:

1. Liquidity

Improve a company’s ability to analyze trends with receivables and improve cash flow forecasting to fund business operations properly. 

Corporate treasury can minimize the need to fund operations using a line of credit and reduce the need to raise more capital.

2. Increase earnings on excess cash

Treasury determines the amount of excess cash invested and selects the investment. 

3. Reduce cost of capital

The treasury department can reduce the cost of capital by negotiating better terms when capital is raised for business operations or an expansion.

4. Compliance

Treasury management makes the process of complying with regulatory requirements easier.

5. Financial risk management

Managing interest rate, currency, and credit risk is more effective with a formal treasury management process. 

A treasury analyst may use hedging strategies to reduce risk and purchase insurance to protect company assets and minimize potential liabilities.

6. Decision-making

Businesses are better positioned to centralize useful information on cash visibility and investment performance for managers to make more informed decisions.

The corporate treasury function can add even more value as a business grows and becomes more complex. 

Larger companies have more assets and liabilities at risk and bigger cash needs.  

Even smaller companies have an opportunity to derive value from executing treasury management strategies and fundamentals, but they often have a smaller finance staff with limited bandwidth. 

Moreover, unless you have a ten-figure cash reserve, many banks and financial institutions won’t even consider offering treasury services to your business. 

Fortunately, Rho Prime Treasury provides the technology and expertise to help startups and SMBs manage treasury functions with less effort, making treasury management available to most businesses.

What's the difference between finance and treasury management?

Financial management focuses on the company’s overall financial stability and performance. These goals are accomplished through budgeting, making operational decisions, and reviewing financial reports. 

Financial management initiatives strive to maximize shareholder value over the long term.

Treasury management focuses on cash flow management, optimizing investment returns on available cash, and planning liquidity to fund business operations. 

What does the corporate treasury do?

Corporate treasury is responsible for capital preservation, business liquidity, and risk management. Here are some specific tasks performed by the corporate treasury:

1. Asset & liability management

In the short term, this task involves matching cash flows with current liability payments to ensure that each liability is paid on time (ensuring liquidity). 

Current assets, including accounts receivable and inventory, are converted into cash. Cash flows from current assets are used to pay current liabilities, including accounts payable.

Asset and liability management also requires matching cash flows with long-term liabilities (ensuring solvency). 

Managers create plans to fund pension plan contributions and for pension payments to retirees. Businesses also forecast cash needs for principal and interest payments on loans. 

2. Cash management

Corporate treasury monitors cash flows and bank account balances. Treasury forecasts the amount and timing of excess cash balances that can be invested. This process is critical to effective working capital management. Here are a few common liquidity management activities corporate treasury functions undertake: 

  • Cash pooling: Cash pooling is a treasury strategy for consolidating cash from various accounts into a single account. For example, a multinational corporation may pool excess cash from its worldwide subsidiaries into one central account, optimizing their collective liquidity.
  • Cash forecasting: Cash forecasting is predicting future cash inflows and outflows, aiding in liquidity management. As an example, a manufacturing firm might predict next quarter's revenues and costs to anticipate potential cash shortfalls and plan accordingly.
  • Cash optimization (or cash concentration): Cash optimization refers to moving excess funds from multiple accounts to a main one to improve liquidity. For instance, a retail chain could nightly transfer the day's sales revenue from each outlet's bank account into their central corporate account to better manage liquidity.

Did you know? Rho Prime Treasury helps businesses - that typically wouldn't receive treasury services from a major bank unless they reach a certain revenue threshold – automate a bespoke treasury strategy and balance cash across their Rho operating checking account and Rho Prime Treasury account? This way, Rho helps businesses ensure they have the funds needed to meet their immediate obligations while also earning yield in T-Bills held in your company's name.

3. Debt and financing management

If additional capital is needed, the treasury department will negotiate lines of credit and other forms of debt financing. The corporate treasury ensures that the business complies with all debt covenants.

4. Investment management

Choose appropriate investments to increase earnings on excess cash while minimizing the risk of loss. Corporate treasury also evaluates the investment time horizon and the tradeoffs between higher yields and longer maturity dates.

5. Foreign exchange risk management and fund transfer management

Financial professionals assess exposure to currency risk and evaluate the costs and benefits of hedging against currency risk.

6. Insurance management 

Use insurance policies as a tool to reduce risk exposure. This may include commercial property, product liability, and workers’ compensation insurance.

7. Liquidity management

Liquidity management is closely tied to cash management. Liquidity focuses on generating sufficient cash inflows to meet short-term obligations. 

Corporate treasury communicates financial strategy and performance to the chief financial officer.

Corporate treasury best practices

To manage corporate treasury effectively, implement these three best practices:

Clear communication between all stakeholders

Systems must be in place that allow all stakeholders to communicate effectively and in real time. 

If, for example, senior management is planning an expansion into new markets, they must communicate the cash flow needed and the timing of cash flows.  

The same is true with long-term planning for liabilities. 

Assume that the company forecasts the dollars needed to fund pension payments and the timing of the payments. 

That information must be communicated to the pension’s investment manager to plan liquidations, so interpersonal skills are important for treasury professionals. 

Use automation to manage effectively 

Corporate treasury software automates cash flow, liquidity, investments, and risk management. 

The best software integrates with banking, accounts payable, expense management, and financial reporting tools.

The software helps automate much of the heavy lifting that goes into successfully executing a corporate treasury strategy, including: 

  • Fund transfers: Moving excess funds in and out of investment accounts depending on liquidity needs. The software uses bank connectivity to schedule the movement of funds based on cash management decisions and your strategy.
  • Oversight: The platform monitors financial markets and investment performance to ensure that investments comply with company policy. The software monitors exposure to interest rate risk and currency risk.
  • Real-time reporting: The treasury department gets immediate reporting on cash positions and investment performance.

Master funds transfer pricing strategies

Corporate treasury requires a large investment in time and resources, and businesses need metrics to assess results. Fund transfer pricing (FTP) measures how funding contributes to company profitability. 

Businesses have many choices regarding how funds are used, and FTP measures the impact of funding. Managers can consider returns on invested assets (cash, loans, etc.), the cost of capital, and how well assets are matched with liabilities.

What metrics does the treasury function report on?

Corporate treasury should have a dashboard of metrics for managing tasks. These are some of the most frequently used metrics used by corporate treasury:

Liquidity horizon

Liquidity horizon estimates the time required to sell a financial instrument or hedge a position's market risk. 

Liquidity horizon assumes that market conditions are under stress and the asset owner is attempting to sell or hedge the financial instrument without materially affecting market prices.

The stock market is a good example. During extreme volatility, bid and ask prices for a stock can change rapidly, and the number of shares traded can also vary greatly. If an entity with a large stock position places a sell order, the price received is difficult to estimate.

A longer liquidity horizon means that the position is less liqui, and there is a higher risk of price volatility.

FTP cost

Fund transfer pricing (FTP) measures how funding contributes to company profitability, and all funding comes with a cost. A line of credit, for example, has a stated interest rate. You can also consider the opportunity cost of funding one initiative with available cash instead of another.

Weighted average yield

The corporate treasury department may be managing dozens of different investments. Weighted average yield calculates the yield earned on each investment, the percentage of total invested dollars for each asset, and calculates the average.

Weighted average yield is a metric that corporate treasury can use to assess performance, and treasury must also consider the average maturity on all investments.

Value at risk (VAR)

Value at risk (VAR) measures the probability of potential losses in an investment portfolio, and VAR is calculated for a specific period. Corporate treasury manages investment risk, and VAR measures and controls investment risk.

VAR metrics can be used to assess the risk of a specific position, a portfolio, or to measure risk firm-wide. For example, a VAR calculation might state that a portfolio has a 4% chance of declining by 5% within the next 30 days.

What are some corporate treasury solutions?

1. Rho

Rho is a financial operating system that helps businesses boost their profitability. One of the platform’s capabilities is the ability to automate treasury management, helping lean businesses generate yield on their cash reserves while maintaining liquidity and security. 

Features

Rho offers a comprehensive set of solutions built into our platform that make it easy for companies to achieve this:

  1. Rho Checking Accounts provided by Webster Bank, N.A., Member FDIC that are FDIC-insured up to $250,000 per entity.
  2. Rho Treasury Accounts are built on a network of over 400 FDIC-insured banks. This allows companies holding funds above $250K to access up to $75M in FDIC deposit insurance per entity.
  3. Rho Prime Treasury, our treasury management service, invests your excess cash in short-dated government securities held directly in your company's name.

Once onboarded to Rho, clients who invest between $1M and $5M with Rho Prime Treasury can use the service’s standard offering. 

Clients with $5M or more portfolios can select a custom investment policy tailored to their business’s unique liquidity and security needs, supported by Rho’s in-house investment team. 

Rho's platform then actively adjusts customers’ portfolios of government securities like U.S. Treasuries to earn market rates while monitoring operating account balances and automatically transferring money as needed.

Pros

  • Treasury automation: Whether you are a CFO managing a lean finance team or a 1-person finance org, Rho can simplify and automate most of your treasury processes for you. 
  • End-to-end finance: Rho offers treasury management and other capabilities like AP, banking services, expense, and corporate cards – all in one platform. 
  • Compliance with investment plan: Rho makes sure that your plan is tailored to fit your firm’s specific cash flow and security needs
  • Investment monitoring: Rho scans the markets and adjusts your portfolio to ensure that your investments are structured for safety, liquidity, and yield
  • Bank account monitoring: Rho technology monitors operating account balances and automatically transfers money to your bank account so that you always have enough cash on hand

Cons

  • U.S. Treasuries vs. money market funds: Rho Prime Treasury gives customers the benefit of investing directly in U.S. Treasuries held in their company’s name. Some may prefer the ease (albeit with some risk) of using money market funds instead. 

Integrations

Rho integrates with QuickBooks Online, Oracle NetSuite, Microsoft Dynamics 365 Business Central, and Sage Intacct

Rho also supports flat-file CSV exporting, so you can automatically tailor transaction categorization to your business needs. Read more about our accounting integrations here.

Pricing & Fees

The Rho platform is free, but the Rho Prime Treasury capability does have a small annual management fee of 0.15%. 

2. Mercury

Mercury is a financial technology company providing basic banking products and financial services tailored to VC-backed startups.

Mercury offers a few cash management solutions, including Mercury Vault and the option to invest in money market funds. 

Features

Mercury offers FDIC-insured checking and savings accounts, Mercury Vault, which offers up to $5M in FDIC deposit insurance, and a treasury solution that allows businesses to invest cash in money market funds with lower-risk, high-liquidity portfolios powered by Vanguard and Morgan Stanley.

Pros

  • Mercury Vault – product offers up to $5M in FDIC insurance through partner banks and sweep networks. 
  • Relatively low minimum – Mercury Treasury is currently available to users with account balances over $500K.

Cons

  • Poor customer support: No phone support is offered, chat support is not available on weekends, and reviews indicate customers struggle with customer support responsiveness. 
  • Money market funds vs. T-Bills: Unlike Rho Prime Treasury, which invests corporate cash directly in U.S. Treasuries held in your name, Mercury invests in money market funds, which may come with the risks we described earlier in this piece. 
  • Point-solution for cash management: Lacks multi-entity support and additional finance capabilities companies may want to integrate with banking, including AP automation and expense management. 

Read our Mercury business credit card review for more information about their corporate card solutions for VC-backed startups.

Integrations

Offers some limited integrations with QuickBooks and other ERPs. 

Pricing

Mercury offers fee-free banking services except for currency exchanges and charges some fees for the administration of investments. 

Mercury vs. Rho

Mercury is great for startup businesses just starting and want access to business banking services built into a technology platform with a good user experience. 

As growth-stage startups scale, they may need additional capabilities like multi-entity support, AP automation, and other important financial operations features. In those scenarios, Rho can provide a great alternative option.

3. Meow

Meow is a business banking platform that allows businesses to invest in money market funds. This includes Maximum Checking with up to $125 million in FDIC insurance through partner banks, sweep networks, and U.S. Treasury Bills held in custody at BNY Mellon Pershing.

Features

Meow users can invest using high-yield checking accounts or U.S. Treasury Bills. Users can manage multiple bank accounts using a single login on the platform. Workflows and permissions can be customized, and the solution integrates with payment and credit card processing tools.

Pros

  • Security: Internal auditing process that controls data access and confidentiality.
  • Configurable: Easy process to configure users and approvers.
  • Withdrawals: Cash withdrawals are processed quickly.

Cons

  • Self-serve business wealth management: You must make investment decisions on your own.
  • Founder and venture capital focus: Meow is focused on the startup/ venture capital market and does not offer a suite of integrated products to manage cash and spend.
  • Money market funds vs. T-Bills: Unlike Rho Prime Treasury, which invests corporate cash directly in U.S. Treasuries held in your name, Meow invests in money market funds, which may come with the risks we described earlier in this piece. 

Integrations

Meow integrates with QuickBooks, Xero, NetSuite, and Sage.

Pricing & Fees 

Meow requires you to book a sales call for a specific quote.

Meow vs. Rho

Aside from being focused primarily on the venture capital and startup market, Meow’s treasury solutions are self-serve, which means you must make investment decisions on your own. If you aren’t comfortable doing that or feel you lack the experience, Meow is likely not a good choice.

Rho offers a seamless platform to manage all cash and spend for companies of any size, and treasury solutions that put your cash to work for you based on a policy you select.  

4. Arc

Arc provides startup cash management essentials, including payment management, treasury services, and financing. Arc can manage a company’s operating account, and provide cash reserve account services. Investments are made through BNY Mellon Pershing.

Features

Arc customers can invest in money market funds and treasury bills, not derivatives. Users can set up auto-balancing rules to automatically move funds between operating and treasury accounts. 

Customers can also diversify deposit balances across Arc’s banking partnerships and receive up to $5.5 million in FDIC coverage and $500,000 in SIPC insurance.

Pros

  • Customer support: Live support with a dedicated on-call relationship manager
  • Recurring vendor payments: Recurring payments can be scheduled in the operating account

Cons

  • Mobile functionality: Arc does not offer a mobile app
  • Operating accounts: Operating accounts do not earn interest
  • Automated cash balancing:  The standard treasury account does not offer automated cash balancing

Integrations

Arc provides an integration with QuickBooks. 

Pricing

Arc Treasury has no account opening fees, transfer fees, or minimum balance fees, but charges fees for assets under management and other services. Arc requires you to book a sales call for a specific quote.

Arc vs. Rho

Arc does not currently offer a mobile app, which may slow down user productivity. Arc’s standard treasury account does not offer automated cash balancing.

Rho offers a fast and reliable platform for treasury management, and the solution is integrated with AP, expense management, and commercial banking. Also, Rho provides a mobile app and does not charge platform fees.

5. HighRadius

HighRadius is a finance platform that provides tools for managing order-to-cash processes, B2B payments, treasury, and risk management. 

Features

The HighRadius Autonomous Treasury solution provides access to all bank accounts on a single platform. The solution offers cash management, cash forecasting, and automated bank reconciliations. 

Users can track and manage financial instruments, including investments and debt obligations. Real-time reporting is offered for treasury activity.

Pros

  • Interface: Several reviewers commented on the user-friendly interface
  • Dashboard: The dashboard is well-designed and easy to navigate

Cons

  • Customer support: More than half of reviewers mentioned poor customer support. Users sometimes experience difficulty reaching support, long response times, and no resolution to support tickets.
  • Bank integration: This integration does not function as designed and is slow to update, according to several reviews
  • ERP integration: Several reviews pointed out that the ERP integrations are slow to sync information, which impacts productivity

Integrations

Integrations with SAP, Netsuite, Sage Intacct, and Microsoft Dynamics 365.

Pricing & Fees 

HighRadius requires you to book a sales call for a specific quote.

HighRadius vs. Rho

HighRadius reviewers mentioned difficulty reaching support, long response times, and difficulty resolving support tickets. Rho offers live, expert support via chat or phone 7 days a week.

HighRadius users have bank integration, ERP integration, and other functionality issues. Rho offers a seamless platform to manage treasury, accounts payable, expenses, and banking. HighRadius charges platform fees, and Rho does not charge platform fees.

6. Tesorio

While primarily known for its AR automation solutions, Tesorio provides a cash flow management automation solution that helps businesses establish a full view of their treasury operations. 

The treasury solution doesn’t provide a way for businesses to invest in investment instruments directly but helps integrate a company’s bank accounts so they have a full picture of cash in one place. 

Features

The cash flow management tool aggregates all bank accounts and provides data on a single platform. Users can forecast cash flows, perform scenario planning, and generate reports. Customers can search and filter transactions to find data quickly.

Pros

  • Cash flow management: Useful tools to forecast cash collections
  • Invoice status: Easy to locate and review the status of a particular invoice
  • Report extraction: Simple process to create reports quickly 

Cons

  • Investment functionality: Tesorio does not have an integration that allows cash to be moved in and out of an investment account
  • Platform access: Several reviewers mentioned glitches and delays in platform access
  • Login issues: According to several reviews, the platform will frequently log out users between tasks.

Integrations

Tesorio has ERP integrations with NetSuite and Sage Intacct.

Pricing & Fees 

Tesorio requires you to book a sales call for a specific quote.

Tesorio vs. Rho

Tesorio does not offer an integration that allows excess cash to be transferred into an investment account. The platform has glitches and login issues, which slow down productivity. Finally, Tesorio charges platform fees.

Rho provides bank account and investment account integrations and a reliable treasury management solution with no platform fees.

7. Treasury Intelligence Solutions (TIS)

Treasury Intelligence Solutions (TIS) provides a cloud-based platform for cash flow management, liquidity, and payments. 

Features

The CashOptix solution offers cash forecasting, working capital management, and automates bank statement reconciliations. These capabilities are focused on providing organizations with 360-degree visibility and control over their global cash positions, bank account structures, and working capital metrics.

Pros

  • Cash flow analysis: The software provides robust cash flow analysis data
  • Risk management: Platform features make it much easier to monitor and control financial risks
  • Bank account management: The system effectively combines all banking data into a single platform

Cons

  • User interface: The interface is somewhat difficult to navigate and seems outdated, according to some reviews
  • Cost: Fees increase as users and additional banking relationships are added
  • Implementation: Some reviewers thought that implementing the platform required too much time 

Integrations

TIS has limited ERP connectivity, allowing bank statements to be uploaded into an ERP. TIS does not offer fully synced ERP integrations.

Pricing & Fees 

TIS requires you to book a sales call for a specific quote.

TIS vs. Rho

The TIS user interface is difficult to navigate and needs to be updated, and implementing the solution can take time and effort. In addition, TIS does not offer full ERP integrations, and platform fees increase as your business grows.

Rho provides treasury, expense management, banking, and AP within one intuitive platform. Users can implement Rho quickly, and there are no platform fees.

Wrap-Up: All about the corporate treasury function

After reviewing the corporate treasury function and several software platforms on the market, think about the features and tools that are most important for your business.

And if you still need help choosing the best corporate treasury software, let's make this easy.

If:

  • End-to-end functionality to manage liquidity and forecast cash flows
  • Ability to invest excess cash in government securities with next-day liquidity on U.S. Treasuries
  • A scalable platform that grows as you grow

All wrapped up in unbeatable pricing and live support available 24H Mon-Fri, 10-7pm ET on weekends sounds nice to you, then you should consider Rho.

Schedule time with a Rho payments expert today!

Competitive data was collected as of January 3, 2024, and is subject to change or update.

Investment management and advisory services provided by RBB Treasury LLC, an SEC-registered investment adviser. RBB Treasury LLC facilitates investments in securities: investments are not deposits and are not FDIC Insured • Investments are not bank guaranteed, and may lose value. Investment products involve risk and past performance does not guarantee future results.

Related Posts

Join thousands of top business leaders today.

No personal guarantee or personal credit check required.