Cash management and treasury management are closely related terms which, though used interchangeably, ultimately refer to different functions. Cash management is essentially a task of treasury management, yet it’s crucial to many organizations because it forms the foundation for strong financial health. Treasury management includes a wide range of activities such as cash management, debt management, risk management, and working capital management.
In most organizations, especially those in government and nonprofit, a combination of cash management and treasury management tasks are needed to successfully run the organization. In this post, we’ll clearly define both terms, explain the activities each entails, and discuss when your organization should focus on cash management vs. treasury management.
What is Cash Management?
Cash management, a sub-task of treasury management, is defined as the monitoring and management of daily cash flow to ensure that your organization has sufficient funds to operate. If there’s a risk of cash depletion, cash management can make it easier to balance cash flow and replenish funds. In other words, cash balances are monitored closely to avoid idle cash, ensuring funds are efficiently utilized for operational needs.
Cash management is about overseeing your organization’s cash balances in the present. This can include understanding your current cash position and predicting the future cash position based on your cash flow forecast.
Cash Position:
The quantity of cash held by an organization at any given moment.
Bill payments, investments, and unexpected liabilities can affect your organization's cash inflows and outflows. In order for your organization’s treasury operations to function independently, you need to establish a system that maximizes liquid assets while minimizing outgoing operational and logistical costs, improving overall financial performance.
This is where cash management is most beneficial.
Cash management helps organizations ensure that their cash flow covers their financial obligations.
Cash flow management strategies cover several key areas:
- Payment processing: Overseeing payment schedules, vendor payments, and payroll disbursements to maintain smooth operations and avoid late fees or penalties.
- Bank relationship management: Managing multiple bank accounts, fees, and services to ensure cost-effective and efficient banking operations.
- Cash flow forecasting: Accurately predicting cash inflows and outflows to ensure liquidity and support day-to-day operations.
- Compliance and reporting: Ensuring all cash-related transactions comply with government regulations, accounting standards (such as GASB or FASB), and internal policies.
Having an excellent grasp on cash management helps your organization efficiently manage incoming money and cash balances to ensure there’s enough money on hand for daily needs.
Cash management also helps you accurately anticipate future cash needs and surpluses, allowing you to invest and borrow more strategically so you can increase revenue and reduce costs.
Download: Cash Flow Forecasting Template for Treasury Teams
What is Treasury Management?
Treasury management is a more wide-ranging, strategic function that focuses on managing an organization’s financial assets, investments, and long-term financial risks.
Unlike handling daily cash needs, treasury management solutions involve optimizing capital structures, planning for future financial data needs, and ensuring that your organization is prepared to weather uncertainties with the proper financial assets. It’s about knowing where you currently stand and positioning your organization for a stronger future.
Risk management plays a big role here. Treasury management involves forecasting potential risks to ensure your organization can meet its financial obligations.
Treasury management prepares your organization for possible financial problems in the future that could impact your goals.
Treasury management covers several key areas:
- Managing investments: Allocating excess cash into long-term investments that align with your organization's financial goals and risk tolerance.
- Handling long-term financial risks: Identifying, measuring, and mitigating financial risks, such as interest rate fluctuations, foreign exchange exposure, and credit risk.
- Optimizing capital structure: Ensuring the organization maintains a balanced and efficient mix of debt, equity, and other financing options to minimize the cost of capital.
- Debt management: Overseeing the issuance, repayment, and refinancing of debt to ensure the organization meets its obligations efficiently and cost-effectively.
- Intergovernmental and grant fund management: Ensuring the proper allocation, tracking, and management of funds received from federal, state, or other grants, maintaining compliance with reporting requirements.
- Managing cash: Monitoring and managing daily cash flow.
To sum up cash management vs. treasury management, cash management is a shorter term day-to-day cash monitoring plan and treasury management is longer term strategic financial planning and risk management.
Key Differences Between Cash Management and Treasury Management
Treasury and cash management both play an important role in your organization’s financial health. The main difference is how they both operate on varying levels of scope, focus, and time horizons.
Scope
Cash Management
When it comes to scope, cash management is primarily concerned with short-term liquidity needs, focusing on certifying that there’s enough cash available to cover day-to-day operations.
Treasury Management
Treasury management gives your organization a much broader view of long-term financial planning, investment strategies, and risk management.
Focus
Cash Management
Cash management focuses on daily cash inflows and outflows, specifically cash in real-time and the near-future. It ensures that your organization can meet its immediate obligations.
Treasury Management
Treasury management gives your organization that even deeper strategy, which helps you concentrate on long-term financial stability, capital structure optimization, and mitigating financial risks.
Time Horizons
Cash Management
When it comes to the time frame for each, cash management operates on short-term, addressing immediate and near-term liquidity needs.
Treasury Management
Treasury management is your long-haul strategy. It requires a long-term view, planning for future financial requirements and ensuring that your organization is financially sustainable over months or even years.
Responsibilities
Cash Management
Cash management is responsible for managing bank accounts, payments, and short-term cash forecasting.
Treasury Management
Treasury management’s responsibilities include managing investments, handling long-term debt, and ensuring the organization has access to capital when needed.
| Aspect | Cash Management | Treasury Management |
| Scope | Tactical, day-to-day liquidity | Strategic, long-term financial planning |
| Focus | Cash inflows/outflows, payments, receipts | Investments, capital structure, risk management |
| Time Horizon | Short-term (days, weeks) | Long-term (months, years) |
| Responsibilities | Managing bank accounts, handling payments, forecasting short-term cash needs | Managing investments, handling debt, optimizing capital |
To help your organization succeed, there needs to be a balance of both cash and treasury management. This helps to ensure you’re able to meet immediate needs while planning for the future.
When to Use Cash Management vs. Treasury Management
Now that you know the differences between cash management vs treasury management, let’s take a closer look at when your organization should be using them.
When Cash Management is Needed
As mentioned above, cash management is going to be your best tool when your organization needs to know if it has enough liquidity to cover immediate obligations.
Scenarios may include:
- Paying bills and meeting payroll
- Managing receivables and payables
- Handling unexpected expenses
- Preparing for audits
- Investing surplus cash
- Funding capital expenditures
- Managing grant disbursements
- Addressing cash shortages
In these situations, since cash management is focused on the short-term you’re more apt to make tactical decisions to keep the business functioning smoothly on a day-to-day basis. This is due to the real-time view into your organization's cash use.
When Treasury Management is More Relevant
Now, a treasury management system becomes more important when your organization is planning for long-term financial health and stability. It should be ongoing and always include cash management strategies.
Scenarios may include:
- Allocating excess cash into long-term investments
- Managing debt repayments and refinancing
- Monitoring interest rate fluctuations and hedging risks
- Optimizing capital structure to minimize the cost of capital
- Handling foreign exchange risks for international transactions
- Managing cash collateral for outstanding obligations
- Ensuring compliance with debt covenants and financial agreements
In the treasury department, treasury management often involves managing a city’s long-term investments or debt. For example, a city might issue bonds to fund a new infrastructure project like a school or road, and the treasury team is responsible for managing the proceeds from those bonds, making sure the funds are invested wisely, and overseeing debt repayment over time.
On the other hand, cash management is more focused on the day-to-day. A good example would be managing a local government’s cash flow to ensure there’s enough money available to cover payroll, pay vendors, or fund public services without running into cash shortages. It’s all about making sure the lights stay on and everyone gets paid on time.
Integrating Cash and Treasury Management Solutions for Success
Now that you know the importance of treasury vs. cash management, your organization should use both to help create a solid foundation for financial success and ensure you have the right amount of cash to avoid any future risks.
When you integrate these two functions, your organization can:
- Maintain operational stability: Ensuring short-term liquidity for immediate obligations.
- Enhance long-term financial health: Strategically managing investments and risks to safeguard future financial success.
- Optimize resources: Efficiently using both liquid and long-term financial assets for maximum impact.
How DebtBook Helps Treasurers with Cash Management
DebtBook's Cash Management application provides government and nonprofit treasury teams with purpose-built software to power efficient liquidity and cash flow management.
With DebtBook’s Cash Management solution, organizations can:
- Build accurate cash forecasts: Accurately anticipate future cash needs and surpluses, allowing you to invest and borrow more strategically so you can increase revenue and reduce costs.
- Catch fraudulent transactions: Continuously monitor all bank accounts so you can detect any unauthorized or unusual activity and take action swiftly to reduce the risk of financial loss.
- Automate daily cash positioning: Get real-time cash visibility across your accounts automatically, giving you the time and insights you need to make higher-value, strategic decisions.
Gain full control over cash flow to minimize risk, reduce costs, and improve financial performance. Learn more about our modern treasury and accounting software today.
Related Cash Management Reading
- Bank Fee Management: Challenges & Insights for Treasury Teams
- Common Bank Reporting & Payment File Formats for Treasury
- [FREE DOWNLOAD] Cash Position Worksheet for Treasury
Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk.
