Why Manufacturing Companies Should Consider Outsourcing Their Treasury Management
August 17, 2023
Effective treasury management is essential for maintaining financial stability and ensuring continued growth for manufacturing companies. However, managing treasury operations can be complex and time-consuming, requiring specialized knowledge and expertise. Manufacturing companies must focus on their core competencies to stay ahead of the competition. As a result, more and more manufacturers are turning to outsourcing to manage their non-core functions, including daily operational treasury management. In this article, we will explore why outsourcing treasury management can benefit manufacturing companies.
What is Treasury Management?
Treasury management is managing an organization’s financial assets, liabilities, and risks. This include daily cash, working capital management, investments, debt, foreign exchange and other financial risks. Effective treasury management is essential to ensuring an organization’s financial stability and growth.
Treasury management involves various critical activities, including cash flow management, risk assessment, liquidity planning, and working capital optimization. These tasks can become overwhelming for manufacturing companies, especially as they strive to balance production demands, supply chain intricacies, and financial obligations. Attempting to manage these complexities in-house can lead to resource strain, errors, and missed opportunities.
Broadly speaking treasury management has two distinct deliverables for an organization:
- Strategic Treasury Requirements: These are the fundamental building blocks for an organization’s approach to managing its capital base and financial risks. Key elements of this include identifying and sourcing debt, setting risk parameters in terms of foreign exchange, interest rate and commodity exposures, and managing bank relationships.
- Operational Treasury Requirements: These are the daily repetitive tasks that the treasury function must undertake to ensure that the strategic objectives are correctly implemented. These include daily cash/liquidity management, cash positioning, identification and hedging of FX and other risk exposures, manging inter company netting cycles and providing cash reporting and forecast information.
The well defined and repetitive nature of daily operational treasury requirements makes these processes ideal candidates for outsourcing to an expert third party firm with the necessary knowledge and IT infrastructure.
Why Outsource Operational Treasury Management?
Expertise: Managing treasury functions requires specialized knowledge and expertise. Outsourcing Outsourcing the daily operational elements of treasury management allows manufacturers to tap into the expertise of professionals with a deep understanding of financial markets, investment strategies, and risk management.
Cost Savings: Maintaining a fully resourced in-house treasury department can incur significant costs, including salaries, benefits, training, and technology investments. In addition, outsourcing can provide access to economies of scale, resulting in lower transaction costs and better pricing. Outsourcing treasury management offers a cost-effective alternative, as companies pay only for the specific services they require. This approach helps manufacturing companies achieve greater financial predictability and control over expenses.
Flexibility: Outsourcing treasury management allows manufacturers to adjust their financial strategies quickly and efficiently. This is particularly important in volatile financial markets where the ability to respond to changing conditions can be critical.
Risk Mitigation: Manufacturing companies often face various financial risks, such as interest rate fluctuations, foreign exchange volatility, and credit risk. Outsourcing treasury management allows these companies to leverage the expertise of professionals in risk assessment and mitigation. Through proactive strategies, outsourced treasury teams can help safeguard the company’s financial health and minimize exposure to potential threats.
Improved Efficiency: Outsourcing treasury management can also improve efficiency for manufacturing companies. Companies can streamline their treasury operations by working with an experienced provider, reducing the time and resources spent on financial management. This allows internal teams to focus on core business functions and other strategic initiatives.
Access to Advanced Technology: Leading outsourced treasury management providers offer access to advanced technologies and specialized tools that may not be financially feasible for a manufacturing company to develop in-house. These tools can streamline processes, improve data accuracy, and provide real-time insights that aid decision-making. This includes treasury management software, which can automate processes and provide real-time visibility into financial performance. This can help manufacturing companies make more informed financial decisions and optimize cash management.
Focus on Core Competencies: By outsourcing non-core functions such as treasury management, manufacturers can focus on their core competencies – designing, producing, delivering high-quality products, marketing, and sales. This allows them to concentrate on what they do best while leaving financial management to professionals who specialize in this area. Manufacturers can reallocate their internal resources toward value-generating activities that directly contribute to business growth by entrusting treasury operations to specialized experts.
Scalability: As manufacturing companies expand or experience fluctuations in their operations, their treasury management needs may change. Outsourcing provides the scalability and flexibility required to adapt to evolving business conditions. Whether managing growth, navigating market uncertainties, or addressing sudden changes in cash flow, an outsourced treasury management partner can quickly adjust strategies to meet the company’s unique requirements. This allows manufacturing companies to respond to changing market conditions and business needs without investing in additional resources or technology.
Regulatory Compliance: Manufacturing companies operate in a complex regulatory environment that requires careful adherence to financial reporting standards and compliance requirements. Outsourced treasury management professionals are well-versed in these regulations and ensure that companies remain compliant, avoiding costly penalties and reputational damage.
For manufacturing companies, outsourcing treasury management offers a compelling solution to their intricate financial challenges. By focusing on core competencies, accessing specialized expertise, controlling costs, mitigating risks, and leveraging advanced technologies, manufacturers can position themselves for sustainable growth and operational excellence. By leveraging the expertise of professionals, manufacturers can reduce costs, mitigate financial risks, and focus on their core competencies. As the business landscape evolves, embracing outsourced treasury management can empower manufacturing companies to thrive in a competitive global market. If you are a manufacturing company looking to improve your financial performance, outsourcing your treasury management may be the right solution.