Treasury Policy

A business receives cash, pays suppliers and may borrow or hold reserves, and without a shared policy different employees may take inconsistent risks. A treasury policy states what is allowed, who decides and how the company checks results, and it should fit the size and exposures of the business.

Skellerup publishes a corporate treasury management policy showing real governance choices and HSBC Innovation Banking provides a treasury-policy guide, but these are examples and guidance, not terms every company should copy, since a small firm may need a short practical policy rather than a bank-style manual. Start with objectives, because treasury may prioritise payment continuity, preservation of capital and manageable funding costs, and the policy should state how these priorities are balanced.

A high-yield investment that delays payroll cash is inconsistent with a liquidity-first objective. Cash forecasting supports the policy, so define how often the forecast is updated, which entities contribute and what minimum balance or buffer is required, and show restricted cash separately, since a rule to maintain "three months' costs" without a due-date forecast can miss a major payment next week.

Bank counterparty limits reduce concentration, so a company may set maximum deposits or exposure at any one institution, considering credit quality, deposit protection where applicable and operational access. Splitting cash among banks helps only if staff can actually use the accounts when needed.

Investment rules should specify eligible instruments, maturity, currency and credit quality, so a company may allow short-term deposits but prohibit speculative assets, and they should check liquidity and the ability to exit without loss so that the policy does not silently convert a cash reserve into a long-term portfolio. Borrowing rules can set who may negotiate loans, acceptable tenor and leverage limits, and a facility may have covenants or security restrictions that affect other financing.

Treasury should maintain a register of debt and renewal dates, and a policy can require approval before a new bank guarantee consumes capacity. Foreign exchange risk should be measured before hedging by identifying actual currency receipts and payments, not just forecast sales, and the policy can specify which exposures may be hedged and with what instruments, since a hedge without a real underlying exposure can become a speculative position.

Payment controls belong in the operating rules. Define who can add beneficiaries, prepare transfers and release them, separate duties where feasible and verify bank-detail changes independently, because an investment limit is little comfort if an unauthorised payment can empty the account.

Reporting should tell the board or owner what happened, including cash by bank, forecast shortfalls, debt maturity, covenant headroom and policy breaches, and a breach report should state cause, action and approval, since hiding a breach until a quarterly meeting removes the value of the limit. For illustration, a policy caps exposure to one bank at 40% of unrestricted cash, so if unrestricted cash is 5 million, the nominal cap is 2 million; the calculation is simple, but operational accounts, guarantees and other exposure definitions may complicate measurement, so state what counts toward the limit.

Exceptions need a controlled route, for example when a customer pays late in the day and creates a temporary deposit over a limit, so define who can approve it, for how long and how it is corrected, since an unwritten "emergency" exception can swallow the policy if used repeatedly. Review the policy when the company changes, because new countries, acquisitions or large loans can make old limits irrelevant, and a policy issued years ago for a smaller business should not govern a much larger treasury without reconsideration; a treasury policy turns risk appetite into day-to-day rules, so keep objectives, limits, authorities and reporting specific enough to use, and test it against real transactions so the business can pay on time while keeping financial risks within approved boundaries.