How To Create a Treasury Policy

In today's complex financial landscape, companies of all shapes and sizes recognize the critical importance of effective treasury management. A well-defined treasury policy can help growing businesses go beyond just safeguarding their assets, and help optimize the use for their financial resources.

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In this post, we’ll delve into the key steps and best practices involved in building a treasury policy.

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Step 1: Define Objectives and Scope:

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To begin crafting a treasury policy, its crucial to clearly outline the objectives and scope of the policy. This involves identifying your company's specific treasury needs, risk tolerance, liquidity requirements, and long-term financial goals. Understanding these factors will enable the policy to align with your company's overall strategic objectives. 

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Step 2: Assess Risks and Identify Controls:

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Treasury management involves managing various risks, including liquidity risk, interest rate risk, foreign exchange risk, credit risk, and operational risk. While building out your treasury policy, you should conduct a comprehensive risk assessment to identify the potential risks and their potential impact on your company. Once the risks are identified, establish appropriate controls and mitigation strategies to minimize exposure. This could include establishing limits, implementing hedging mechanisms, and utilizing financial instruments to manage risks effectively.

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Step 3: Cash Management and Forecasting:

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An effective treasury policy should provide guidelines for managing cash flow and liquidity. You should implement robust cash management practices, including accurate cash forecasting techniques, optimizing working capital, and establishing efficient payment processes. A well-defined policy should also outline guidelines for managing surplus cash, investing idle funds, and maintaining adequate liquidity buffers.

Step 4: Investment Policy and Guidelines:

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It's important to develop an investment policy within your treasury policy to govern your company's investment activities. This should include your company's risk tolerance, permissible investment instruments, diversification strategies, and performance benchmarks. Consider factors such as your risk and liquidity profile when formulating investment guidelines. If you work with Vesto for your treasury management, this is something that our team can assist you with, and build out for you.

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Step 5: Banking Relationships and Controls:

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A treasury policy should address your company’s banking relationships and controls. You should define clear processes for managing bank accounts, signing authorities, and information security protocols to ensure robust control over funds and minimize any risks.

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Step 6: Reporting and Compliance:

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Ensure that your treasury policy includes reporting and compliance requirements. It's a best practice to establish guidelines for timely and accurate financial reporting, internal controls, and audit processes. Compliance with regulatory frameworks, accounting standards, and tax obligations should be clearly outlined. On top of this, your team should regularly review (at least annually or quarterly) and update the policy to adapt to changes in regulations or internal company circumstances.

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Conclusion:

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Defining a comprehensive treasury policy is a crucial step towards capital efficiency. Of course like any well-designed policy, a treasury policy should be adaptable to changing circumstances and should be periodically reviewed and updated to ensure its continued relevance and effectiveness.

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At Vesto, we pay special emphasis on adhering to the treasury policies of our customers. We’ve also helped many companies build one that works just right for their stage and scale.

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Book a free consultation with our team to see how we can help you. 

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^{The information provided in this blog post is for informational purposes only and should not be considered investment advice or a recommendation to engage in specific investment strategies. It is important to consult with a qualified financial professional and consider individual circumstances before making any investment decisions. Investments involve risk, and past performance is not indicative of future results. The accuracy and completeness of the information are not guaranteed. Regulatory compliance and changes in laws or regulations may affect the information. Consult with professionals for specific advice related to tax, legal, or financial matters.}