The treasury function represents one of the two main aspects of financial management, the other being financial control.

Responsibilities of the Treasury Department

The responsibilities of the treasury department can be categorized into three management levels:

1. Strategic:
   • Decisions on capital structure and distribution/retention policies.
   • Raising capital through equity or debt issuance and determining dividend levels.
   • Assessment and allocation of financial resources.
2. Tactical:
   • Management of cash and investments.
   • Decisions regarding hedging of currency and interest rate risks.
3. Operational:
   • Transmission of cash, placement of surplus cash, and banking transactions.

Treasury staff must also possess specialized skills in handling various capital instruments, knowledge of taxation, and the ability to formulate tax-efficient policies.

Advantages of Separating Treasury and Financial Control Departments

1. Efficient Cash Management:
   • Treasury focuses on optimizing cash use, enabling better liquidity management.
2. Timely Reporting:
   • Separate departments provide timely and detailed financial and cash flow information.
3. Specialized Expertise:
   • The treasury team can develop expertise in currency management, interest rates, and risk assessment.
4. Support for Corporate Planning:
   • Treasury provides specialized advice for strategic planning, especially in areas like foreign exchange and interest rate decisions.
5. Competitive Edge:
   • Efficient treasury management supports marketing efforts and improves the organization’s financial agility, particularly in international operations.
6. Training Ground:
   • Treasury acts as a development platform for future financial leaders.
7. Short Response Times:
   • Treasury is better equipped to handle urgent cash transaction decisions.

Advantages of Operating the Treasury Department as a Profit Centre

1. Cost Realism:
   • Charging market rates for services makes operating costs more realistic for business units.
2. Performance Incentives:
   • Treasury staff are motivated to provide efficient, cost-effective services to achieve profitability, benefiting the organization overall.

Disadvantages of Operating the Treasury Department as a Profit Centre

1. Risk of Speculation:
   • Profit-driven motives could tempt treasury teams to engage in speculative activities, increasing financial risk.
2. Conflict with Business Units:
   • Disputes may arise between treasury and business units over service charges, even if market rates are independently verified.
3. Higher Administrative Costs:
   • Operating as a profit centre increases administrative overheads due to the need for detailed tracking and management of charges.