The Risks and Benefits of Outsourcing Treasury Functions for Large Corporations

5 min read

Managing finances is the most critical thing for all big businesses. Large corporations must manage their wealth wisely to ensure uninterrupted operations. They must assess whether the organization has enough money to meet its operational needs. These responsibilities are handed to employees in the treasury department. 

In the face of rising competition, large corporations must find an effective way to manage their finances. Many companies outsource their treasury departments for improved efficiency and cost-effectiveness. One must also be aware of the risks involved in treasury department outsourcing.

Read on to learn about the risks and benefits of 
Outsourcing Treasury Functions to a third party.

Understanding Treasury Functions

Treasury functions involve managing the organization’s financial assets and liabilities. Cash management, debt management, risk management, and many other functions fall under the treasury department. Without the treasury department, a company might not maintain the required level of funds for daily operations. Finances are crucial, and an organization might go downhill without proper management. Treasury functions ensure that the financial stability of the organization is maintained. With the help of treasury functions, senior management and business owners can gain insights into the corporation’s finances.

Corporations like investment banks, commercial banks, credit insurance divisions, and retail banks require a well-structured treasury department. Without a dedicated treasury department, they might not maintain the optimum level of competitiveness in the market. 

Here are some specific functions completed by the treasury department of large corporations:

  • Cash management is a crucial treasury function that ensures the organization has ample cash to maintain operations. Maintaining the cash flow is essential for business continuity. The treasury department also monitors monetary access and is responsible for effectively using funds for short-term investments.

  • Debt management is another crucial treasury function for large corporations. Treasury experts try to negotiate the debt terms with the lender on behalf of the company. They also focus on debt clearance, debt refinancing, and monitoring.

  • Investment management is essential for large corporations to track the health of their initiatives. The treasury department is responsible for monitoring the health of portfolio companies, analyzing investment opportunities, and making investment decisions.

  • The treasury department is also responsible for finding and eliminating financial risks. Without risk management, a corporation might be vulnerable to market changes, economic shifts, and other external/internal business factors.

Risks of Outsourcing Treasury Functions for Large Corporations

Before we get to the benefits of outsourcing treasury functions, let us discuss the risks of outsourcing work done by the treasury department. Understanding the risks before choosing an outsourcing partner for treasury functions is essential. Some of the most prominent risks are mentioned below:

  • An unreliable outsourcing partner can introduce new operational risks within the organization. A lack of communication or data security issues might develop due to an outsourcing partner.

  • Not all outsourcing firms have technological solutions for financial risk management. An outsourcing partner with poor solutions for risk management can make the organization vulnerable to fraud, corruption, and other foul activities.

  • Some outsourcing firms might engage in unfair practices, fraud, or bribery. If the fraud comes to light, the clients of the outsourcing firm also run the risk of being called out publicly for working with rogue agencies. For the same rationale, large corporations must do thorough research on the outsourcing partner before outsourcing their treasury functions.

  • It is essential to check the compliance status of the third party before outsourcing treasury functions. A non-compliant outsourcing partner can land your organization in legal trouble. An organization might end up paying penalties for non-compliance with treasury laws.

  • The outsourcing partner and your organization must be on the same page. If your outsourcing partner fails to align with your business value or plans, a strategic risk is involved.

Benefits of Outsourcing Treasury Functions for Large Corporations

Here are the benefits of outsourcing treasury functions for large corporations like investment and retail banks: 

  • By outsourcing functions performed by the treasury department, an organization can avoid the need to hire additional employees. As a result, it will save in-house training and on-boarding costs without compromising treasury functions.

  • An organization will have access to treasury experts without hiring them full-time. You must choose a reputed third party known to have a team of treasury experts.

  • A reliable third party can help you streamline treasury functions with the help of new-age technology.

  • By outsourcing the treasury department, a large corporation will become more flexible. It can downsize or up-size whenever required by reducing the in-house burden.

  • A reputed third party can help you ensure financial compliance without pressuring the in-house employees.

  • An outsourcing firm can help you reduce operational and financial risks using the right tools and technologies.

Final words

Treasury functions are essential to maintain the organization’s cash flow, revenue, and return. Financial risks can be eliminated to a great extent with the help of treasury experts. A large corporation can save funds by outsourcing functions of the treasury department to a reliable third party. It is vital to find the right partner to outsource treasury functions.

Must Read: Why Outsourcing Treasury Functions Makes Sense For Small And Medium-Sized Enterprises

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