Treasury management versus cash management: what's the difference?

Much like “climate” and “weather”, treasury management and cash management are closely related terms which, though used interchangeably, ultimately refer to different things. Cash management is essentially a sub-task of treasury management, yet it is particularly important because it forms the foundation for many other tasks that a treasury function may perform.

While not every company has a dedicated treasury function, some combination of treasury management and cash management tasks are needed to run a business. This post seeks to clearly define both terms, explain the activities each one entails, and at what stage a company should focus on one over the other.

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The basics

What is treasury management?

Put simply, treasury management is the act of managing a company’s money and associated financial risk. ‘Money’ here refers to all of a company’s financial assets: cash or cash equivalents, securities, accounts receivables, and inventory. Financial risk refers to any money-related risk that threatens a business, such as those in liquidity, investments, foreign exchange (FX), and interest rate exposure.

In practice, treasury management is made up of several specific activities. Broadly speaking these include cash management, funding and investment management, debt management, trade finance, risk management, working capital management, and insurance management. 

Which of these activities a treasury function is actually expected to perform differs from business to business depending on various factors such as its industry, size, internal structure, and financial objectives.

What is cash management?

A sub-task of treasury management, cash management refers to ensuring that a business has enough cash on hand to meet its short-term obligations. These obligations can include payments owed to suppliers (accounts payable), liabilities like loan repayments, and other business expenses such as salaries.

Cash management is about overseeing a company’s cash balances in the present and relatively near future. This means understanding its current cash position based on historical cash flow data – known cash positioning or reporting – and predicting its future cash position based on a cash flow forecast.

There’s an important operational component here too, since the company’s cash should be readily available and in the right place when it’s needed. As in it’s held in the right currency, located in the right bank account, and is always used in line with internal policies and approval processes.

Cash management therefore encompasses bank account or bank relationship management, since treasurers are the ones interfacing directly with a company’s banks, and is closely tied to payment operations – even if treasurers are not always responsible for actually making payments.

The scope of treasury management

Scope is the most obvious difference between treasury management and cash management, since the latter is a sub-function of the former. Treasury management entails a more holistic approach to a company’s finances and includes a broader range of tasks than purely cash management.

At the highest level, treasury management is about managing, protecting, and optimizing a company’s money. This includes the cash held in a company’s bank accounts but potentially also other financial assets, such as investments, and liabilities such as debts or accounts payable.

The treasury function, or whoever performs that role within a company, is essentially an in-house financial advisor that seeks to position the business for the best possible future. The motivations for pursuing treasury management are varied and highly dependent on the business. Shorter term goals might include building towards a new funding round or IPO while longer term the focus may be on maximizing profitability or minimizing operational risks.

As well as cash management and its related sub-tasks, the treasury management function is typically responsible for activities such as managing debt and equity financing, investment management, foreign exchange risk management, and insurance management. These activities can be fairly complex and time-intensive for companies without proper resourcing. Here’s what each of them entails:

• ‍Cash management is, as mentioned, a core activity within treasury management that includes bank relationship management, payment operations, cash positioning, and cash flow forecasting.

• Working capital management revolves around optimizing a company’s current assets and liabilities to help it operate as efficiently as possible. This includes managing its accounts receivable, accounts payable, inventory, and cash in line with a desired working capital ratio.

• Managing debt and equity financing includes arranging and negotiating credit facilities, managing debt issuance, ensuring compliance with debt covenants, and overseeing the process of raising capital through the sale of shares.

• ‍Trade finance refers to the financing of goods or services, usually in an international trade or transaction, from a supplier through to the end buyer. It aims to help a company minimize financial risk and improve liquidity in foreign transactions.

• Investment management involves investing surplus cash in short-term and long-term investments to generate returns while minimizing risks. This requires a deep understanding of financial markets, investment products, and risk management techniques.‍

• Foreign exchange (FX) risk management involves managing exposure to foreign currency risks from international trade or investments, such as by undertaking short-term FX hedge strategies.‍

• Insurance management involves managing risks associated with insurable events such as property damage, liability claims, and employee injuries.

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The scope of cash management

As highlighted above, cash management is a subset of treasury management that deals with the flow of money in and out of a business. The aim being to ensure a company can meet its short-term financial obligations and keep its operations running. Managing cash at some level is a fundamental prerequisite for any business – and it’s arguably the most important activity performed by the treasury function.

At the most basic level, cash management starts with managing a company’s bank accounts. This involves managing the company’s relationships with its banks, ensuring it has an efficient account setup, and optimizing fees and interest earned.

At its core, though, cash management is about understanding and reporting how much cash a company has now and will have in the future. This is essential in order to be sure that a company can meet its upcoming obligations and continue functioning, and whether there is excess cash that could be used to further business objectives or invested on a short term basis.

To build this understanding, the treasury function creates both backward-looking reports that show how a company arrived at its current cash position – known as cash positioning – and forward-looking reports that help to predict its future cash position – referred to as cash flow forecasting.

While the accounting or payroll team may be responsible for actually performing payment runs, treasury teams are often tasked with overseeing and streamlining payment operations. If a company has multiple banks and entities, it makes sense to centralize the payment process and ensure company policies are always followed when paying suppliers and other counterparties. 

Here are each of the tasks mentioned above in more detail:

• ‍Bank relationship management involves deciding which banks to partner with and overseeing all company bank accounts to optimize fees, maximize interest earnings, and maintain operational efficiency.

• Payment operations are often centralized by the treasury function once a company reaches a certain level of organizational complexity with multiple banks and entities. This makes it easier to control and analyze all of the payments that together make up a company’s inflows and outflows, including managing counterparties and setting up approvals within the payment release process.

• Cash positioning, or cash reporting, involves compiling historical cash flow data in order to understand a company’s current cash positions. It’s backward-looking in nature and the aim is usually to create reports that can be shared with internal or external stakeholders such as your management board, investors, and regulatory bodies.

• Cash flow forecasting is a forward-looking reporting process that seeks to predict a company’s cash flow, usually up to thirteen weeks into the future, in order to inform its short-term cash management strategy. Financial planning teams may create longer-term forecasts to assess the financial impact of business decisions and ascertain what funds will be needed to achieve future goals.

• Liquidity management does not usually fall under cash management, strictly speaking, but is a common next step that involves assessing and managing all of the liquid assets available to a company, of which cash is one alongside short-term investments, credit facilities, accounts receivable, and so on.

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How a company’s focus shifts as it matures

How treasury management is defined at a company depends heavily on the business’s situation. Specifically things like its size, organizational complexity, financial health, and business objectives. For a lot of companies, treasury management in practice means cash management – the various other sub-functions are simply not considered to be worth the time and effort given the company’s situation.

Small versus large companies

As a general rule, smaller companies with less organizational complexity – meaning there are only one or two corporate entities, no international presence, and a relatively small cash flow – tend to focus on basic cash positioning. This is typically performed by the finance team or accountants until a decision is made to bring in treasury expertise.

Larger companies with more complex financial operations – more banks and entities spread across multiple countries – are more likely to need additional treasury management strategies. Companies at this stage also typically have a greater exposure to financial risks, such as the threat of FX volatility due to holding large amounts of cash in multiple currencies. Once a company reaches this stage there is typically a dedicated treasury function in place to coordinate these activities.

The company’s financial health

Following on from the above, a company’s financial situation also directly influences its treasury policies. Newer businesses with less predictable revenue and more cash flow volatility will naturally be focused on managing cash to ensure it can meet its obligations and keep its operations running. A business with several years of stable cash flow under its belt likely has the resources and willpower to consider value-adding initiatives like investments and FX hedging.

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A hypothetical example

Let’s look at a hypothetical example of Dutch startup WREN to illustrate how cash management and treasury management differ in practice.

At first, WREN operates solely in the Netherlands and uses a single bank. All treasury tasks are handled by the company’s accountant using the bank's online portal. At this stage, the company’s cash management processes are mostly about ensuring that operational costs such as salaries are paid on time. The company maintains a high-level cash report in a spreadsheet that's updated on a semi-regular basis. The team uses the report to validate the company's cash position prior to making key business decisions, such as whether to hire new staff or invest in product development.

Upon closing a new funding round, WREN starts to professionalize these processes. The CFO or equivalent needs to report to investors on a regular basis regarding how their capital is being utilized. This requires better financial reporting and the ability to forecast future cash flow more accurately. The company’s inflows and outflows are becoming more varied and new finance tools are being added, resulting in company cash being spread out over more places. In order to get a single overview of the company's cash, now the team has to log into multiple systems, export the data, and normalize it manually in a spreadsheet – taking considerable time and leading to occasional formatting errors.

WREN soon starts to expand its operations, entering new markets, setting up new business entities, and adding more banking partners in different countries. This increases the complexity of its cash management processes significantly, with the team having to use multiple bank portals to pay salaries and suppliers. Finance tasks become increasingly decentralized as multiple people in different teams now need some level of access to make payments and review financial data, leading to concerns about security. International operations also introduces the challenge of managing FX risk, given that cash is being held in various currencies.

In response, WREN begins to enhance its treasury function. The team starts exploring treasury tooling in order to consolidate all of its cash positions in one system, manage its FX exposure, and produce more accurate forecasts to optimize liquidity for the long term. The company considers staffing up a small treasury team to support this shift and help advise the CFO on long-term financial planning.

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How technology can help

There is a growing range of tools to help with both cash and treasury management, covered in detail in our guide to treasury tooling. The basic default option is to use a combination of the bank’s online portal and spreadsheets to manage cash. This is simple to get started with since it doesn’t require any implementation work, but is more time-consuming and error-prone over a longer duration.

As a business grows, maintaining visibility over its cash can become trickier if it means logging into multiple portals, regularly transferring files, and updating spreadsheets. Companies usually introduce dedicated tooling at some stage to centralize cash positions across multiple banks in one system. Reducing manual work and minimizing errors in cash management processes lets finance and treasury teams spend more time and attention on the strategic decisions that help ensure a company’s long-term financial health.

Niche fintech services such as aggregation platforms, electronic bank account management (eBAM) systems, and Swift or EBICS connectors come with relatively low upfront costs but still require a lot of manual work to coordinate. Next are the ERP treasury modules offered by systems like SAP S/4HANA and Oracle’s NetSuite. For companies with such a system already in place, these modules offer basic cash management functionality without needing to implement another system – but integrating an ERP with several banks is complex and costly.

The biggest investment in treasury tooling that a company could potentially make would be to purchase a Treasury Management System (TMS). The TMS has been used by well-staffed and well-resourced treasury teams since the 1980s, but can cost up to $160,000 per year and requires specialist consultants to implement and maintain. That said, most systems today are highly elaborate pieces of software that can facilitate even the most advanced treasury activities – assuming a company has the expertise and resources to fully utilize its functionality.

Until recently, a company looking to upgrade from manual cash management processes and potentially add other treasury activities faced limited options, other than investing in a fully-fledged TMS. The emergence of cloud-based SaaS platforms like Atlar is shifting this dynamic. These modern treasury platforms, the successor to the TMS, offer a more cost-effective, user-friendly route into treasury tooling without compromising on advanced functionality like cash flow forecasting.

Modern platforms like Atlar, unlike legacy TMS solutions, are built on cloud-native, API-first technologies. This makes them easier to implement but also able to provide real-time data insights – crucial for making informed decisions on the fly. With features like automated payment workflows, cash reporting, and forecasting, these platforms are built to handle both the strategic and operational aspects of treasury and cash management.

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Where Atlar comes in

For companies looking to simplify their cash management processes, acquiring a full-blown TMS is probably unnecessary and possibly self-defeating. The implementation process itself can take up to 18 months. Once implemented, dedicated training is typically needed to use its complex functionality and interfaces, and specialist staff are required to manage and maintain the system.

Atlar offers a better solution for modern finance and treasury teams, letting you unify your bank and ERP data, manage cash, create forecasts, and make payments – all in real time, all on one platform. Some of Europe’s most ambitious companies like Acne Studios, GetYourGuide, and Forto are already using Atlar to save hours of tedious admin and manage their money more efficiently.

Is your team being held back by sub-par cash and treasury management tooling? Book a demo to see why modern teams use Atlar instead.

Don't just take our word for it though – below is a sample of the users reviews Atlar has received on G2.

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“Atlar is a game-changer! Allowing us to solve critical payment and treasury challenges. The ease of use and implementation is what stands out for me. I really can't think of any things that I don't like with the tool.” – Mustafa M.

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"Easy to implement, customizable to your needs and modern. One of Atlar's standout qualities is ease of implementation ... Atlar's time-saving aspect cannot be overstated. Customer support and responsiveness are exceptional." – David

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"User-friendly, seamless implementation. Atlar efficiently meets our requirements, such as smooth reconciliation and integration of several banks across regions. This saved time and money but also helped us grow faster." – Verified user