How treasury and risk management will change in the future

What is the importance of risk management for organizations?

Risk management involves overseeing a company’s working capital. This includes making strategic plans on the best ways to keep the enterprise solvent. It also involves:

• Monitoring funds to maintain liquidity
• Lowering the organization’s financial and operational risks

As a company’s treasurer, the major duty is to ensure that the business has enough cash to run smoothly. Treasury risk management is a major role as the corporate landscape has become more complex.

What are the most significant risks that companies face?

Here are some of the most significant risks that companies face:

• Liquidity risk:
  Effective liquidity risk management ensures that a bank can fulfill its obligations as they become due. It also decreases the likelihood of a negative situation developing.
• Counterparty risk:
  The risk that a contracting party will not fulfill its contractual obligations is known as counterparty risk. It’s essentially an indirect form of credit risk, as opposed to direct credit risk from unsecured borrowings like bonds and deposits.
• Foreign exchange risk:
  The most common market price risk managed by treasurers is foreign exchange risk. The currency exchange rate may fluctuate between the trade date and the cash-flow date. However, a negative movement could risk the transaction’s profitability.

Hedging balances the currency fluctuations, which has the following benefits:

• Margin protection
• Increasing the accuracy of cash flow projections
• Keeping currency rate trends out of speculation (or positioning the company in an equal situation)
• Operational risk:

Treasury’s operational risk responsibilities are limited to treasury-related procedures. But in organizations with treasury management solutions, treasury’s responsibilities generally extend to business-wide banking and settlement activities. Treasury is also in charge of :

• Operational risk
• Incorporating sales
• Production
• Buying activities

The treasury team must balance risk and cost to discover the most cost-effective solutions for the company.

What are the best practices to effectively manage risk?

The risk management process involves the following steps:

Apart from these, businesses need three critical aspects to carry out risk management activities :

• A single governance framework that unifies the organization’s policies, processes, and platforms across all entities and places.
• A systematic approach to risk assessment, identification, and planning, as well as continuous communication and collaboration with the entire organization.
• Adapt and expand into a strategic function that may assist in defining risk appetite and driving business decision-making.

What are the different advantages of using risk management and corporate treasury software?

Current liquidity ratios, up-to-date credit rates, and aggregated market data on asset volatility should be used to assess and track liquidity and credit risks. HighRadius treasury solution is an AI-based treasury solution that automates and improves cash forecasting and cash management for treasury teams. Furthermore, corporate treasury software assists in proactive risk management by tracking:

• Real-time FX rates
• Commodities prices

Benefits of corporate treasury software:

• Global cash visibility allows managing cash across all banks, regions, organizations, and currencies.
• Automated data gathering by connecting seamlessly with banks and other sources. It extracts data and auto-populate market data, bank transactions, and other data needed to support multi-currency cash positioning.
• Real-time data and analytical information for identifying and measuring risk and determining the best mitigation approach.
• Accurate and timely access to high-quality data and information to manage risks from foreign exchange volatility, currency conversion rates, interest rate fluctuations, and commodity price variations.
• Managing positions and exposures with effective cash forecasting and hedge management.
• Various stakeholders create different versions of reports.
• Automated bank statement processing and reconciliation reduces errors and allows cash managers to concentrate on higher-value tasks.

Schedule a demo to learn more about how software for corporate treasury helps to manage risks.