A systematic approach to developing a corporate treasury policy

Creating a comprehensive treasury policy is an important step for any company. Overall, it helps protect a company's financial health by adding consistency and efficiency to treasury functions. A detailed treasury policy can also facilitate managing risk effectively and ensuring compliance with internal standards and external regulations. At the same time, it can support strategic growth by providing a foundation for short- and long-term decision-making.

For those in the beginning stages, developing a corporate treasury policy can seem like a daunting process. However, taking a methodical step-by-step approach can make the process easier and ensure that all critical areas have been considered.

Laying the groundwork

It's important to engage senior management and other key stakeholders early in the policy development process. This guarantees buy-in along the journey and confirms policies align with corporate strategic goals. It may also be necessary to consult external advisors to verify compliance with regulatory requirements as you move through the process.

Some initial tasks to undertake include:

• Assessment: Review existing processes and practices, compare them to industry standards and best practices to identify strengths and weaknesses
• Objectives and scope: Map out clear objectives and define areas to be covered by the policy to ensure compliance
• Policy development: Create clear, concise, actionable policies and define procedures to execute policies along with controls to monitor compliance and effectiveness
• Risk management strategy: Conduct a risk assessment to uncover potential financial risk and develop strategies to manage and mitigate that risk

Putting it together

Once the framework is approved, it's time to create the formal treasury policy tailored to your organisation's specific needs and structure. Areas to cover may include:

• Purpose: What is the purpose of the corporate treasury policy?
• Scope: Which entities and what activities are included?
• Objectives: What are the objectives within areas such as liquidity management, risk management, investment management, funding and compliance?
• Governance and responsibility: What is the governance structure and what are specific stakeholder roles and responsibilities?
• Cash management: What is the approach to cash management across bank account management, cash forecasting, cash concentration and disbursement controls, for example?
• Investment: What are the investment policy objectives and attributes?
• Funding and capital structure: What is the funding and capital structure?
• Risk management: What are the types of risks, and how will each be managed?
• Internal controls and compliance: What internal controls are included and external compliance obligations?

Implementation, training and support

Communicating the new policies to all employees who will be impacted is crucial. Start with a detailed plan that includes timelines and training requirements for rolling out the policies. Set up comprehensive training for relevant teams to ensure they understand the new policies and can effectively implement them. Create a support system to manage policy-related questions and issues.

Monitoring and updating

Just as a corporation does not remain static - the treasury policy should evolve as the company grows. Ongoing monitoring and reporting are essential based on Key Performance Indicators (KPIs) specific to your operation to track compliance with policies and measure their effectiveness. A few usual KPIs include:

• Liquidity metrics: cash conversion cycle, cash flow forecast accuracy
• Investment metrics: return on investment, yield on investment
• Debt and funding metrics: debt-to-equity ration, interest coverage ratio
• Risk management metrics: FX exposure, credit exposure
• Operational efficiency metrics: transaction processing time, error rates
• Compliance and governance metrics: breach rate, internal audit findings

It's also suggested to conduct regular reviews of the overarching treasury policy so that it remains relevant. Be sure to update policies based on feedback, performance data and changes in the business environment.