Defining Treasury Metrics: Why Enterprise Business Leaders Should Make It a Priority for Treasury Management

What are treasury metrics?

Treasury metrics or treasury key performance indicators are metrics used to track and analyze the performance of treasury. Enterprises must establish the appropriate and latest treasury KPIs for liquidity, funding, financial risk management, and moreover making treasury a strategic role player in the CFO’s office.

How to select the right set of treasury metrics for enterprise treasury management?

Choosing the right KPIs for the enterprise is therefore critical for treasury operations to be effective. The treasurer must design his or her measuring tools to align with the company’s strategic goals and objectives, as each enterprise is unique. Both quantitative and qualitative KPIs can be used in the process. Treasury should identify the important activities it will oversee in order to meet the previously established goals.

Each treasury operation is different, the three fundamental areas of treasury responsibility should be the cornerstones of treasury KPIs. Here are three fundamental areas of treasury metrics for enterprises:

1. Operational metrics
   This helps to keep track of the efficiencies of the following operations in your business:
   • Investments: By keeping track of daily cash transactions, the treasurer can prepare for both long and short-term liquidity planning without missing out on investment opportunities.
   • Ending balance: By keeping track of ending balance allows for better and faster identification, measurement, and comprehension of crucial risk variables, allowing C-suite executives to make proactive borrowing decisions to maintain cash concentration.
   • Hard and soft dollar savings: By keeping track of cash flow visibility allows enterprises to invest capital wisely while reducing debt and expenses which leads to hard and soft dollar savings.
   • Actuals vs. forecasts: By keeping track of the variance, enterprises are able to reduce the gaps between forecast and actuals which improves cash forecasting accuracy.
2. Analytical metrics
   This helps to keep track of the efficiencies of the following operations in your business:
   • FX risk exposure and hedging effectiveness: Treasury department has taken on increased responsibilities for financial risk management in recent years. By keeping a close eye on risk management KPIs, enterprises are able to identify where the company’s biggest risks are and evaluate hedging efficiency.
   • Financial health: Continuous monitoring provides companies a fair and regular analysis of their financial health by determining the cash deficits or surpluses. This helps them plan for investments and debts.
3. Strategic metrics
   This helps to keep track of the efficiencies of the following operations in your business:
   • Long-term funding: By continuous tracking of historical data, market trends companies are able to make proactive long-term investment feasibility for asset purchases, mergers and acquisitions, and corporate growth.
   • Process accuracy: It assists in maintaining high cash flow accuracy by identifying pitfalls of treasury management.

Why are treasury metrics the top priority for enterprise leaders?

Treasury metrics can be an effective way to keep eye on treasury activities. By evaluating the various treasury KPIs on a regular basis, enterprise leaders can ensure the efficiency of all treasury activities, while also highlighting any areas of concern.

Traditionally, the treasury departments have sometimes had difficulty demonstrating the value they contribute to the organization. As a consequence, there has sometimes been downward pressure on resources. By regularly monitoring treasury KPIs, the treasury department is able to overcome these doubts, providing conclusive evidence of the contribution made by the treasury to the organization’s bottom line.

Enterprise leaders prioritize treasury metrics also for keeping a close check on risk management which provides them to understand where their biggest exposures reside and improve hedging effectiveness.

How to track treasury KPIs effectively

Once the appropriate treasury KPIs have been determined, software that can review the KPIs on a regular basis and ensure quality performance is required. Regularly evaluating the KPIs ensures complete cash flow insight and encourages proactive financial planning.

Choose an AI treasury software that meets companies’ requirements to maintain track of cash flow drivers and track progress toward treasury goals.

AI cash management tools help enterprises achieve worldwide cash visibility in real-time, assist in monitoring daily and prior day cash positions, and converting cash balances into base currency using current currency exchange rates.

Furthermore, the cash forecasting cloud may be used to automate data collection, drill down into the variance drivers between predictions and actuals, and continuously improve forecast accuracy in order to make data-driven business decisions.

How maintaining treasury metrics improves treasury management

Regularly reviewing treasury metrics enable enterprises to:

Treasury metrics clearly provide a mechanism for implementing treasury policy and monitoring real policy compliance. It takes time and effort to identify the right collection of KPIs that will add value to a specific treasury operation, and it’s also important to note that effective, value-adding KPIs require strong supporting treasury technology. Improved treasury management should be the end result of monitoring KPIs.

Benefits of using HighRadius treasury software for improving treasury management

• Automated data gathering: The system uses a bottom-up approach to consolidate data from the local to global level automatically. Additionally, using automation, data is extracted directly from sources and systems and presented as a single source of truth.
• Cash forecasting: AI cash forecasting software can provide up to 95% accuracy for both long and short-term cash flow estimates across all categories, including complex ones like A/R and A/P.
• Cash management: Using a cash management tool, treasury can keep track of real-time cash flows across bank accounts, enterprises, and currencies in user-defined worksheet templates with transaction-level drill-down capability.
• Proactive decision-making: With accurate data, treasury gains more confidence for analyzing quarter-ending cash, and improves working capital decisions. Moreover, the CFOs can make data-driven and long-term decisions with easy and continuous data access and timely reports.
• Mitigate risks: With proactive planning, firms can reduce their financial risks through automatic reconciliation to detect discrepancies or fraud in transactions or payments.

Schedule a demo now, to learn more about monitoring the right set of treasury metrics for your enterprise.