Over the past years, the types and quantity of business risks that might impact a company’s treasury risk management have multiplied due to the rapid rate of change brought on by digital innovations and the developing regulatory environment.
Treasury leaders manage several key risks related to changes in interest rates, credit, currency, commodities, and operations. Businesses may be exposed to any or all of these risks. The most common risks include:
CFOs have difficulty locating suitable cash repositories to meet their liquidity demands. A liquidity crisis can arise when multiple financial institutions face a liquidity crunch and start withdrawing their self-financed reserves or trying to sell assets to generate cash. The CFO should continually examine the company’s cash flow situation and forecasts to prevent being caught with a sudden shortage.
The CFO must ensure that those issuing or insuring securities are financially stable and creditworthy if surplus funds are to be invested to earn interest. Checking an issuer’s credit rating, which offers an unbiased assessment of the possibility that a third party will pay on time and in full as anticipated, is one approach to do this. The CFO must also be confident that counterparties to financial instruments that manage risks (such as interest rate swaps) will perform as expected.
CFOs are also working to hedge against interest rate risk. Reducing the effect of uncertainty related to interest expenses and unfavorable movements in interest rates through hedging makes cash flow more predictable and can help protect a business’s profitability.
An FX risk framework’s success relies on identifying weaknesses, both internally and in the markets. Yet because of the unstable nature of FX rates, volatility and hedging, corporations struggle to spot the risks. The need to protect revenues from multi currency volatility and costly hedging forces CFOs to develop intelligent solutions for FX risk management. CFOs can enable corporate treasury teams to make smarter decisions by enhancing how FX rates are obtained and risk is evaluated.
The organization must consider its goals and treasury risk management functions while managing operational risk. Since operational risk is pervasive, the goal is to reduce and control all risks to an acceptable level.
Although CFOs are used to managing these risks, the looming combination of rising interest rates and inflation creates significant uncertainty over the short and long terms in treasury risk management. Any one of these risks may limit a business’s potential for expansion. CFOs can employ advanced financial modeling to identify risks and business possibilities for their companies. Additionally, CFOs can use technology to ensure information visibility and accessibility throughout the company.
Automated treasury technology, with real-time data collection, processing, and monitoring, will be able to flag potential threats sooner than is currently possible, giving CFOs more time to focus on evaluating the identified threat and curtailing it before it reaches its target.
The three major areas where technology can enhance treasury risk management functions are:
The best practices you can implement to manage risks are:
Even though these best practices help an organization greatly, AI-powered treasury management software helps safeguard your organization against unforeseen risks and human errors.
Below are the unique features HighRadius Cash Forecasting software provides, which can help with treasury risk management.
CFOs should adopt AI-based cash flow forecasting software to serve as strategic advisors for their companies. The benefits of adopting the HighRadius cash forecasting software for minimizing treasury risks are:
Automate cash forecasting and cash management with our AI-powered Treasury suite and experience enhanced end-to-end cash flow visibility
Talk to our expertsThe HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.