In the previous article, we talked about how implementing a Treasury function in your business can mitigate your business’s financial risks.
So what measures can a Treasury function consider to enhance your cash management? Naturally, the cash flow rhythm of each business may vary. However, in general, your company’s Treasury function could consider establishing policies in respect of the following.
#1 – Income forecasting
This is not just a question of how hard your sales and marketing arm is working to obtain revenue.
It is affected by a whole host of other factors too, such as:
- How exposed your business is to each of your customers
- The reliability of your customer in terms of being a payer
- How often you invoice your customer
- What credit terms (if any) your customer enjoys
- Anything else your business is doing to mitigate payment unreliability
For example, your business may want to establish credit control policies that take the customer’s risk profile into consideration before allowing that customer a period of credit.
#2 – Expenditure forecasting
Conversely, the business should consider whether it has enough cash to sustain its fixed and running costs. These may include the following:
- Whether the timing of its outflows matches the timing of its revenue collection
- Whether its transaction costs have been optimally minimised
#3 – Foreign exchange management
Some businesses may want to consider if they have specific needs to manage their foreign currency risks. For example, if a business wants to invest in a project abroad, it can make more sense to borrow in the currency where the project is located when considering the exchange rate risks.
#4 – Policy formulation and implementation
Having assessed the financial risk profile of the business, the Treasury function should formulate a policy response and implement the same. The financial risk profile of the business should be constantly monitored and reviewed, and policies adjusted accordingly.
The Treasury function may want to put in place Standard Operating Procedures (SOPs) for rank-and-file staff to follow. These may include defining who may be authorised signatories for specified levels of authorised expenditure. The appropriateness of these SOPs should be reviewed on a regular basis. In larger, more complex organisations, these SOPs can be delegated to specific committees.
Corporate governance is key to this process. In a company, the board of directors must be able to effectively direct and supervise policies set by the Treasury function and any other sub-committees. All directors of Singapore incorporated companies should pay especial attention to Section 157A(1) of the Companies Act, which has recently been amended to emphasise the supervisory role that directors play in corporate governance.
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We also work closely with our partners at Wrike to implement collaboration solutions suitable for your needs.
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jiekai.candoer@gmail.com or weekiang.candoer@gmail.com
