Treasury And Fund Management PDF

TREASURY AND FUND MANAGEMENT CHAPTER # 1 INTRODUCTION TO TREASURY AND FUND MANAGEMENT TREASURY MANAGEMENT ∙ Definition Treasury Management services can streamline business finances by managing cash, investments, and other financial as...

TREASURY AND FUND MANAGEMENT CHAPTER # 1 INTRODUCTION TO TREASURY AND FUND MANAGEMENT TREASURY MANAGEMENT ∙ Definition Treasury Management services can streamline business finances by managing cash, investments, and other financial assets. It’s a management system that optimizes your business’s liquidity, while also mitigating its financial, operational, and reputational risk. Treasury management encompasses collections, disbursement, information reporting, capital management, currencies, and risk management for businesses. Track and manage your business’s cash flow, including the funds going in and out, investments, accounts receivables, etc. ∙ Definition Treasury Management can be understood as the planning, organizing and controlling holding, funds and working capital of the enterprise in order to make the best possible use of the funds, maintain firm’s liquidity, reduce the overall cost of funds, and mitigate operational and financial risk. It covers working capital management, currency management, corporate finance and financial risk management. Simply put, treasury management is the management of all financial affairs of the business such as raising funds for the business from various sources, currency management, cash flows and various strategies and procedures of corporate finance. Functions of Treasury Management Treasury Management aims to ensure that adequate cash is available with the organization, during the outflow of funds. Further, it also contributes to optimum utilization of funds and makes sure that there are no unutilized funds kept in the firm for a very long term. The functions of treasury management are discussed below: 1. Cash Management: Treasury Management includes cash management, and so it ensures that there are an effective collection and payment system in the organization.  1 AMNA ASIM SHAIKH TREASURY AND FUND MANAGEMENT 2. Liquidity Management: An optimum level of liquidity should be maintained in the business, for the better and smooth functioning of the business, i.e. the company must be able to fulfil its financial obligation when they become due for payment, such as payment to suppliers, employees, creditors, etc. And to do so, cash flow analysis and working capital management act as the most important tool for treasury management, to achieve its strategic goals. 3. Availability of funds in adequate quantity and at the right time: The treasury manager has to ensure that the funds are available with the organization in sufficient quantity, i.e. neither be more nor less, to fulfil the day to day cash requirement for the smooth functioning of the enterprise. Further, timely availability of funds also smoothens the firm’s operations, resulting in the certainty as to the amount of inflows available with the company at a particular point in time. 4. Deployment of funds in adequate quantity and at the right time: The deployment of funds has to be done in right quantity such as the acquisition of fixed assets, purchase of raw material, payment of expenses like rent, salary, bills, interest and so forth. For this purpose, the treasury manager has to keep an eye on all receipts of funds and the application thereof. Further, the funds must be available at the time of need, which may be different for different firms and also for the purpose for which they are used. The period may differ from a week to month when it comes to acquisition of the fixed assets and two to three days in case of working capital requirement. 5. Optimum utilization of resources: Treasury Management also aims at ensuring the effective utilization of the firm’s resources, to reduce the operating costs and also prevent liquidity shortage in the coming time. 6. Risk Management: One of the primary objectives of the treasury management is to manage financial risk to allow the enterprise to meet its financial obligations, as they fall due and also ensure predictable performance of the business. It tends to identify, measure, analyse and manage risk in order to mitigate losses that has the potential to affect the company’s profitability and growth in any way. Hence, treasury management is accountable for all types of risk that can influence the business entity. Further, the treasury management intends to maximize return on the funds available with the company, by making such investments which have higher return and low risk. Objectives of Treasury Management ▪ Availability of right quantity – It ensures that the funds have been arranged in the required quantity. This quantity is available to the firm either as external loans or as internal generation. ▪ Availability at right time – The requisite funds for day to day working of the firm are available in time in addition to being available in quantity. ▪ Deployment of fund in right quantity – It ensures that right quantity of funds is deployed. For developing the right amount of funds, the treasury manager keeps track of all receipts of funds and time table of deployment of funds is to be drawn up. ▪ Deployment of fund in right time – A logical corollary of sourcing funds at the right time is that funds should be deployed at the right time. The treasury manager has to honour the outstanding commitments on working capital account within a short span of time. ▪ Profiting from availability and deployment – One of the prime objectives of a treasury manager is to ensure timely procurement of right amount of funds and timely deployment  of right amount of funds. The objective results in administrative smoothening and paves 2 AMNA ASIM SHAIKH TREASURY AND FUND MANAGEMENT way for register achievement of performance targets of the form. Modern day treasury manager has another objective which is to profit from such sourcing and deployment. Scope of Treasury Management Treasury management is concerned with both macro and micro facets of the economy. At the macro level, the inflows and outflows of cash, credit and other financial instruments are the functions of the government and the business sectors. These inflows are arranged by them as borrowing from the public. The micro units utilize these inflows and build up their capacities for production of output. Keep your business finances on track while gaining more control and efficiency with cash flow, payments and payroll, accounting, and banking. Treasury management begins with a conversation between you and your business banker about the needs of your company. Single-Member LLCs and Sole Proprietors may not need much more than Business Checking and Savings Accounts with mobile and online banking, as well as Bill Pay. However, as your business grows, you’re going to need more help with Cash Management. Let’s take a look at the various services in the next section. Types of Treasury Management Services When you need more business cash management help than online and mobile banking can deliver, choose a la carte from our treasury management services such as remote deposit capture, merchant services, sweep accounts, multi-user access, wires, ZBAs, payroll, direct deposit, and more. All of these Treasury Management services can be integrated with your existing business checking and savings accounts. ∙ Autobooks: An online accounting tool that automates processes for invoicing, paying bills, accounts receivable, and more. ∙ Automated Clearing House (ACH), Payroll, and Wire Services: Reduce overhead costs and save time by automating your payments and payroll. ∙ Business Bill Pay: Streamline back office functions and pay bills online anytime, set up electronic payroll deposits, and more. ∙ Merchant Services: Get the lowest available rates on credit card processing. Offer your customers more convenience and buying power by accepting all major credit cards. ∙ Lockbox Service: Turn receivables into cash more quickly and save time and money. ∙ Fraud Protection: Automated tool that ensures only authorized checks clear your account. ∙ Sweep & Zero Balance Accounts: Maximize your cash potential by putting idle funds to work, automatically and safely. ∙ Remote Deposit Capture: Scan checks from anywhere and they’ll be recorded and balanced even when the bank is closed. ∙ Vault Service: Reduce trips to your local banking center and add security with armored car  deliveries. 3 AMNA ASIM SHAIKH TREASURY AND FUND MANAGEMENT Benefits of Treasury Management for Business As your business grows, fraud and risk management become more important concerns. Cash management services can help with fraud detection and prevention through services like Positive Pay, approval of certain payments and wire transfers, and more. Other advantages of treasury management include: ∙ Time Efficiency: Businesses can save time by streamlining payment processes and reduce hours spent on payment authorization. ∙ Cost Savings: Use treasury management tools and resources to detect and identify the cost of bank transactions and other related payment fees. Having access to this data can help businesses see where they might be incurring additional fees and work to mitigate that. ∙ Cash Visibility & Forecasting: Gaining control over financial processes can alleviate some of the guesswork in financial planning and reduce costly errors. Forecasting also gives you the ability to obtain additional yield on investments, lower-cost borrowing decisions, and pay down debt methodically. Cash visibility allows decisions to be made in a positive way that affects a business’s bottom line. ∙ Improve Productivity: Automate manual processes such as financial data management or automated payment initiation. ∙ Fraud Protection: Detects and protects against fraud and breaches. With services like account alerts and ACH (ACH stands for Automated Clearing House, a U.S. financial network used for electronic payments and money transfers. Also known as “direct payments,” ACH payments are a way to transfer money from one bank account to another without using paper checks, credit card networks, wire transfers, or cash), business owners are able to see in real-time if there is suspicious or fraudulent activity happening. How do Treasury Managers Work? A treasury manager oversees the cash flow and revenue of a business. They are in charge of the organization’s overall finances, including managing financial risk. Their main job duties are to monitor day-to-day operations while overseeing a long-term financial strategy. FUNDS MANAGEMENT Definition: Fund Management is the process in which a company that takes the financial assets of a person, company or another fund management company (generally this will be high net worth individuals) and use the funds to invest in companies that use those as an operational investment, financial investment or any other investment in order to grow the fund; post which, the returns will be returned to the actual investor and a small amount of the returns are held back as a profit for the fund. Objectives of Fund Management The primary objective of fund management is to manage investments on behalf of investors. Besides, some of the other objectives are as follows: 4 AMNA ASIM SHAIKH TREASURY AND FUND MANAGEMENT ∙ Ensure the highest level of safety and stability for the investors by focusing on investment opportunities that offer the right mix of risk and return. ∙ Guarantee capital appreciation of the investments in the long term. ∙ Besides long-term capital appreciation, generate regular cash flow through interest and dividend income on the investments. Types of Fund Management On the basis of investment types, fund management can be divided into the following 4 types: ∙ Mutual Fund: It is a type of open-ended fund that pools investments from multiple investors to purchase securities. ∙ Pension Fund: This type of fund is built to generate income for the investors after their retirement. ∙ Trust Fund: It is a type of estate planning tool that maintains the investment assets under a trust that is managed by a neutral third party. ∙ Hedge Fund: This type of investment fund use complex trading and risk management techniques to trade in relatively liquid assets. How do Fund Managers Work? The primary responsibilities of the fund manager include the selection of appropriate investment strategies for the investors and the management of their portfolio. Fund management may comprise of one manager, two persons as co-managers, or a team of three or more co-managers based on the size of the assets under management. A fund manager needs to monitor the market, ongoing economic trends, and available investment opportunities in order to make informed investment decisions. A fund manager always seeks to stay ahead of the peers and beat the competition by picking the right securities and implementing the appropriate investment strategy. Importance of Fund Management Fund management is very important because investors, both institutional and retail, rely on them for achieving their investment goals. The fund management companies work round the clock to assess the financial position of the investment assets in order to help the investor’s financial objectives in a timely manner. The financial objectives may be an education fund for children, a retirement fund, etc.  5 AMNA ASIM SHAIKH