Small and medium-sized enterprises must ensure business continuity with their daily operations. They require working capital to manage day-to-day operations. A lack of funding to manage crucial business activities can put small businesses in a difficult spot. It might be hard for them to survive in a competitive market. Treasury functions are vital to ensure that these operations are carried out optimally, besides being responsible for managing debts and financial risks for the enterprise. Small and medium-sized enterprises often outsource their treasury functions for improved efficiency.
Read on to understand the importance of outsourcing treasury functions for small and medium-sized enterprises.
What are treasury functions for small and medium-sized enterprises?
Treasury functions are related to the finances of a particular enterprise. Many small businesses have a dedicated treasury department to manage the enterprise’s financial assets, debts, and liabilities. Cash management would be very challenging for any business without the right treasury functions. Liquidity management, debt management, and many other processes come under the treasury department. In short, treasury functions ensure that businesses have the required working capital to maintain continuity. Non-core business functions like back-office accounting, reporting, and loan management also come under the purview of the treasury department.
Since there are many core and non-core treasury functions, the organization might feel the burden. It is why small and medium-sized enterprises are increasingly outsourcing treasury functions.
Here are some of the core treasury functions essential for the survival of small and medium-sized enterprises:
- Liquidity management is among the main responsibilities of the treasury department. It is essential to manage the enterprise’s liquidity and maintain the required level of cash flow. With cash flow management, treasury experts reduce the need for external borrowing.
- Treasury experts also focus on eliminating financial risks within the enterprise. Risk management is necessary for a small business to become more competitive. When risks are overlooked, they might disrupt the enterprise’s stability and continuity.
- The treasury department also focuses on reducing the debt or loan burden of the enterprise. It can take actions like debt refinancing or debt consolidation to reduce the overhead burden. When a new debt is passed, treasury experts might set terms with the lender on behalf of the enterprise.
- The core treasury functions also include investment management. Small and medium-sized enterprises must look to identify excess cash. Excess funds must be invested for higher returns by the enterprise. Treasury experts will identify the right short-term investment opportunities.
As you can see, many core treasury functions exist for small and medium-sized enterprises. Besides the aforementioned functions, there are many non-core treasury functions for enterprises. Since these functions cannot be ignored, small and medium-sized enterprises are bound to look for outsourcing options.
Why is outsourcing treasury functions essential for small and medium-sized enterprises?
The importance of outsourcing treasury functions increases for small businesses. It is because they are vulnerable to more risks than large-scale corporations.
Here’s why outsourcing the treasury department is a must for small and medium-sized enterprises:
- Large corporations might have a dedicated talent acquisition team to find treasury experts. Things aren’t easy for small and medium-sized enterprises in the market. They might not find full-time treasury experts to help them with cash management. By outsourcing the treasury department to a reliable third party, enterprises will have a team of treasury experts working for them.
- Small and medium-sized enterprises do not have to indulge in hiring and training full-time treasury experts. Enterprises do not have to pay a talent acquisition firm to find treasury experts. They can save costs by outsourcing treasury processes to a reliable third party.
- Cash management, debt management, and other treasury functions are critical and require expert advice. It is beneficial for senior management and business owners when they get an unbiased opinion from the outsourcing partner.
- Reliable outsourcing partners use technology for different treasury functions. For example, they use portfolio monitoring systems to align the investments with the business strategy. New-age technologies and digital solutions can transform a small business looking to streamline its treasury processes.
- Small and medium-sized enterprises must focus on compliance for treasury operations. A reputed outsourcing partner can help the enterprise align its treasury functions according to local/state compliance norms.
Besides the benefits of outsourcing treasury functions, there are also some risks. For example, an unreliable third party might put your financial data at risk of cyber attacks. Strategic risks might arise if your enterprise and the third party do not follow the same strategy. For the same rationale, one must compare different service providers and choose a reliable partner for treasury operations.
Treasury functions are essential for the survival of small and medium-sized enterprises. Without treasury functions, small businesses might not optimally maintain their working capital, debt, and investments. A reliable outsourcing partner can help small and medium-sized enterprises to streamline treasury operations at reduced costs. Outsource your treasury processes now for increased efficiency!