Good treasury management keeps your business steady and growing. At its core, treasury management is the process of overseeing a company’s cash, investments, and financial risk to make sure your company can meet obligations, handle surprises, and act on opportunities when they arise.

While it often happens behind the scenes, treasury management plays a direct role in helping your business improve cash flow, free up capital, and prepare for both opportunities and challenges. Whether you're scaling your operation or navigating a tight financial climate, here are practical ways to strengthen your position, starting with better forecasting.

1. Start with Smarter Forecasting

If you don’t know where your cash is going, or where it’s likely to go, you’re flying blind. A solid treasury strategy starts with forward-looking cash forecasting. The goal isn’t just to predict balances; it’s to equip you to plan for seasonality, market fluctuations, and growth opportunities.

A strong forecast includes:

• Historical cash flow patterns from at least 24 months of data
• Known expenses and receivables with payment timing analysis
• Seasonal fluctuations (many businesses see 15-40% variance by season)
• Payment behavior by key customers (typically 30-60-90 day payment patterns)
• Economic indicators or industry shifts that affect your sector

Even simple forecasting models can reveal hidden cash crunches or surpluses you can put to work more effectively.

2. Streamline Cash Flow Operations

Once you understand where your money is headed, the next step is to make it move more efficiently. That means optimizing both accounts receivable and accounts payable.

To improve working capital:

• Implement automated invoicing and collections
• Standardize payment terms and follow-up processes
• Offer early payment discounts or enforce late payment penalties (2/10 net 30 typically accelerates 15-20% of receivables)
• Use vendor portals to simplify invoice management and capture early-pay discounts

These steps not only improve cash flow, but they also reduce administrative burden and improve relationships with both vendors and customers.

3. Manage Liquidity with Intention

Cash on hand is great, until it’s sitting idle. On the flip side, too little liquidity leaves you exposed in a downturn or unexpected opportunity. The key is to find the right balance.

Industry best practice suggests maintaining operating cash reserves equal to 30-60 days of expenses, depending on your business model and cash flow predictability. Service businesses often need less; manufacturing and seasonal businesses typically need more.

Best practices for liquidity management include:

• Establishing a baseline cash reserve
• Investing surplus funds for short-term yield
• Using lines of credit or sweep accounts for flexibility
• Consolidating bank accounts to reduce complexity

A tailored liquidity strategy ensures you can cover your obligations, while still putting idle cash to work.

4. Align Investment Strategy with Liquidity Needs

Once you’ve stabilized liquidity, your next move is putting excess cash to work. But this isn't about chasing high returns, it's about balancing safety, liquidity, and yield in a way that supports your business goals.

Key elements of a smart investment policy:

• Defined investment horizons (0-90 days, 3-12 months, 1-3 years)
• Clear risk tolerance based on cash flow stability and industry factors
• Diversification across low-risk vehicles (e.g., money market funds, short-term bonds)
• Quarterly performance reviews and annual policy compliance checks

Ask yourself: Can I access these funds if I need them? And am I getting a return that justifies tying them up? Most businesses can safely invest 30-50% of their cash reserves in slightly longer-term instruments without compromising liquidity.

5. The Benefits of Cash Pooling

If your business has multiple bank accounts or operates across entities, cash pooling can be a game-changer. By centralizing funds, you reduce the need for external borrowing and gain better control over your cash position.

Benefits of effective cash pooling:

• Reduced interest expenses
• Increased interest earnings
• Centralized visibility for decision-making
• Simplified bank account structure

You can choose between physical pooling (moving cash between accounts) or notional pooling (consolidating balances for interest calculation without actual transfers), depending on your setup and jurisdiction.

6. Strengthen Risk Management Practices

Treasury isn’t just about managing assets; it’s about protecting them. A thoughtful approach to financial risk management helps you navigate interest rate shifts, currency volatility, and exposure to counterparties.

Start with these risk areas:

1. Foreign Exchange (FX) Risk

If you buy or sell in other currencies, even a small swing in exchange rates can hit your margins. Hedging tools like forward contracts, currency swaps, or natural hedging through operational shifts can help.

2. Interest Rate Risk

Are your loans fixed or variable? How would a rate change impact you? Use swaps, rate caps/floors, or refinancing strategies to match your debt structure to your market outlook and tolerance.

3. Counterparty & Operational Risk

Diversify counterparties and review contracts regularly. On the operational side, ensure strong internal controls, dual approvals for wire transfers, and regular reconciliations.

Ready to Strengthen Your Treasury Strategy?

Treasury management isn’t just a back-office function, it’s a strategic advantage. With the right mix of forecasting, liquidity planning, and risk management, you can make smarter decisions, free up capital, and strengthen your business’s financial foundation. At Lutz, our Client Advisory Services team has helped numerous organizations optimize their treasury operations through comprehensive strategies and innovative solutions. Contact us to explore what you can do to grow and improve your financial position.