Corporate finance is a complex function with intertwined rules, modules, and features. The two terms “financial management” and “treasury management” might sound alienated to anyone outside the financial realm. Both terms are, indeed, very vital to the business’ success. They serve different purposes but do work together.
In this article, our mission is to help you, our readers, to distinguish these terms in less than five minutes.
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Contents
- What is treasury management?
- What is financial management?
- Strategic focus
- Risk management approaches
- Decision-making authority
- Technology and tools
What is treasury management?
According to the Association for Financial Professionals (AFP), treasury management is defined as the process of overseeing an organisation’s monetary assets, including cash, daily liquidity, and risk assessment.
Treasury management supports business strategy through effective fund management and risk mitigation. The main goals are:
- Optimising cash flow for day-to-day operations
- Maintaining sufficient liquidity for operational needs
- Managing financial risks and compliance
- Ensuring fund availability for strategic initiatives
Companies can structure treasury operations as a cost centre. Organisations with multiple legal entities often place treasury functions at headquarters. This setup provides tighter control and reduces operating costs.
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What is financial management?
Financial management covers the entire financial structure of an organisation. It involves strategic planning, organising, and controlling financial undertakings to drive business success and meet regulatory requirements.
Financial management combines several core functions like accounting, fixed-asset management, revenue recognition, payment processing, etc.
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Compared to treasury managers, financial managers juggle more responsibilities. These include maximising profits, tracking liquidity, meeting compliance requirements, creating financial scenarios based on market conditions, and building strong relationships with investors.
Strategic focus
Treasury operations cover vital daily activities that keep finances stable. The department watches daily bank activity, predicts cash flow, and sets up daily cash positions.
Their main tasks include:
- Managing bank relationships and account structures
- Overseeing payment processing and fund transfers
- Monitoring liquidity positions and cash balances
- Making investment decisions for surplus funds
Treasury management works within specific financial rules that change based on location and industry.
Financial management, on the other hand, covers a broader strategic level, combining planning, organising, and controlling financial resources to meet organisational goals.
Financial managers oversee the following four major areas:
- Planning: Projecting financial needs and allocating funds
- Budgeting: Distributing available funds to cost centres of all sizes
- Risk assessment: Evaluating market, credit, and operational risks
- Procedural oversight: Establishing financial controls and processes
Risk management approaches
Risk management plays a vital role in treasury and financial operations. Each domain takes its own approach to spot and alleviate potential threats. A systematic approach protects organisational assets and ensures stability.
Treasury departments put several protective measures in place to protect the organisation’s financial assets:
- Market risk management through hedging techniques
- Credit risk assessment for counterparties
- Liquidity risk monitoring through cash flow analysis
- Operational risk reduction
Treasury departments use sensitivity analysis and scenario planning to review potential risks. These analyses help them spot variables that substantially affect financial models and prepare the right responses to market changes.
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Financial risk management works within a broader framework that covers enterprise-wide risk considerations. The framework typically comprises these components:
| Component | Main Goal | Key Activities |
| Risk identification | Systematic detection | Market analysis, threat assessment |
| Risk assessment | Impact evaluation | Quantitative analysis, stress testing |
| Risk response | Strategy implementation | Control measures, policy development |
| Risk monitoring | Continuous oversight | Performance tracking, compliance checks |
Unlike treasury’s focus on immediate risks, financial management thinks over long-term strategic implications.
Decision-making authority
Organisations draw clear boundaries between treasury and financial management departments through distinct decision-making powers and authority lines. These departments have different responsibilities and operational reach.
Treasury departments work within specific authority limits that control their decision-making ability. The treasury team’s authority covers:
- Daily cash management and fund allocation
- Working capital decisions
- Bank relationship management
- Short-term investment choices
Financial management wields broader decision-making powers that shape an organisation’s future financial direction. The finance team’s influence reaches strategic planning and resource allocation.
| Authority aspect | Treasury | Financial Management |
| Decision scope | Operational decisions | Strategic planning |
| Approval limits | Transaction-based | Policy-based |
| Risk authority | Daily risk management | Strategic risk oversight |
The influences between the two may vary more or less depending on the organisation’s size and structure.
Technology and tools
Organisations today need specialised software solutions to manage their finances well. The core difference between treasury and financial management systems comes from how they operate and what they cover.
Treasury Management Systems (TMS) are central hubs that manage organisational liquidity and risk. These platforms make treasury processes automatic and help teams see cash positions better.
Core features of a TMS include:
- Cash management
- Cash forecasting
- Payment processing
- Reporting
Financial management software has tools that handle income, expenses, and assets. These solutions help maintain daily business operations and protect financial data while maximising profits.
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The software has modules for:
| Function | Purpose | Key Features |
| Core accounting | Daily Operations | Ledger management, expense tracking |
| Risk management | Data Protection | Fraud prevention, compliance tools |
| Strategic planning | Resource Allocation | Budgeting, forecasting capabilities |
Comparison table
Below is a summary of key differences between the two terms:
All in all, while treasury management and financial management may seem like distinct terms, they are intricately connected and vital for the success of any organisation.
Despite their different scopes, these two domains work in tandem, with treasury management informing the decision-making of financial management, and financial management providing the overarching financial strategy that guides the treasury function. By understanding the unique roles and responsibilities of each, businesses can optimise their financial operations, mitigate risks, and drive sustainable growth.
As organisations navigate an increasingly complex financial landscape, the interplay between treasury and financial management will only become more critical. This puts pressure on CFOs to be the driving force for both financial efficiency and innovation. Modern CFOs have to wear more hats than ever.
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