Treasury KPIs to track

As we navigate the evolving financial environment of 2024, mastering critical finance operations KPIs is essential for treasury professionals aiming to make strategic decisions and stay ahead. In this article, we examine the top Treasury KPIs to track in 2024, helping you optimize cash flow, implement risk management strategies, and align treasury operations with your organization's goals.

Cash visibility percentage

Cash Visibility Percentage reflects the proportion of cash balances you can monitor and access in real time—an essential metric for efficient liquidity management.

Definition

This KPI indicates how much of your company's total cash balances are visible and accessible to your treasury team. A higher percentage signifies better control over cash resources and improves liquidity management. Understanding liquidity is crucial in enhancing cash visibility.

Importance

High cash visibility enables you to make informed decisions, optimize cash utilization, and respond quickly to financial needs or market changes. With a clear view of your cash positions, you strengthen liquidity management and support effective cash strategies.

Percentage of payments succeeding first time

Definition

Percentage of Payments Succeeding First Time measures the proportion of payments processed successfully on the first attempt. Calculate it by dividing the number of successful first-time payments by the total number of payments processed, then multiply by 100:

Percentage of Payments Succeeding First Time = Number of Successful First-Time Payments / Total Number of Payments Processed x 100

Importance

A high first-time payment success rate is crucial for efficient treasury operations. It reflects the effectiveness of your payment processes and offers several benefits:

• Operational efficiency: Minimizes time correcting payment errors, allowing focus on strategic activities.
• Cost reduction: Reduces fees associated with failed payments and reprocessing.
• Cash flow management: Ensures timely payments, improving cash flow predictability and stability.
• Vendor relationships: Builds trust with suppliers, strengthening your negotiating position.
• Risk reduction: Lowers chances of compliance issues related to payment errors.

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By monitoring and improving this KPI, you boost your organization's financial performance and operational efficiency. Implementing effective cash flow management strategies enhances your ability to process payments successfully. Understanding the ACH payments process and the differences between check vs ACH payments can further streamline payment efficiency.

Percentage forecast error by business unit

Accurate cash flow forecasts are vital. The Percentage Forecast Error by Business Unit measures how closely your projected cash flows align with actual results across different divisions.

Definition

This KPI compares forecasted cash flows to actual cash flows in each business unit. It's calculated using the formula:

Percentage Forecast Error = Actual Cash Flow - Forecasted Cash Flow x 100%

Importance

Tracking this KPI helps you:

• Identify discrepancies: Pinpoint divisions where forecasts are consistently inaccurate.
• Improve forecasting methods: Refine models based on historical performance.
• Enhance cash management: Optimize allocation, reduce liquidity risks, and make informed decisions.

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By improving forecast accuracy, you better manage financial risks, reduce reliance on short-term borrowing, and seize investment opportunities. Regular monitoring fosters accountability and drives continuous improvement in financial planning.

Funding buffer

Maintaining a funding buffer is essential in an unpredictable financial landscape. This reserve of liquid assets covers unexpected expenses or cash shortfalls, ensuring financial resilience. Including a funding buffer in your treasury policy creation is crucial for effective financial planning.

Definition

A funding buffer is a reserve of liquid assets set aside to manage unforeseen financial obligations, ensuring immediate access to cash during unexpected events. Understanding working capital differences can help in effectively maintaining this buffer.

Importance

A funding buffer allows you to:

• Manage liquidity risk: Mitigate insufficient cash flow during critical times.
• Ensure operational continuity: Maintain operations without disruption.
• Enhance stakeholder confidence: Demonstrate strong liquidity management to investors, creditors, and suppliers.

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Regularly monitoring this KPI balances risk management with efficient capital use, preventing overcapitalization or vulnerability to liquidity shortfalls.

Cost of funds performance

Assessing the expenses incurred to acquire capital—known as the Cost of Funds Performance—is essential for effective treasury management.

Definition

This KPI measures the average cost a company pays for its financing sources, weighted by their proportion in the overall capital structure. A common method is the Weighted Average Cost of Capital (WACC), considering both debt and equity costs.

Importance

Tracking the Cost of Funds Performance is crucial for:

• Financial efficiency: Identify opportunities to reduce financing costs and enhance profitability through cost reduction strategies.
• Investment decisions: Lower costs make more projects financially viable.
• Risk management: Manage risks associated with interest rate changes and market fluctuations.

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Regular assessment ensures you secure competitive financing rates and support growth initiatives, providing insights into capital utilization efficiency.

Investment portfolio liquidity

Definition

Investment Portfolio Liquidity refers to the ease with which your company's investments can be converted into cash without significantly impacting their market value. Utilizing capital budgeting methods can aid in managing your investment portfolio effectively.

Importance

Monitoring this KPI allows you to:

• Ensure quick access to funds: Respond promptly to unexpected expenses or cash flow needs.
• Balance risk and return: Optimize strategies to maximize returns while keeping assets liquid.
• Support financial stability: Reduce risks associated with holding illiquid assets.

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Regular assessment maintains financial flexibility and supports overall financial health.

Hedge ratio

Definition

The Hedge Ratio measures the percentage of your company's financial exposure protected through hedging strategies, quantifying how much risk is mitigated using instruments like derivatives. Understanding hedge accounting provides an overview of how these strategies impact financial statements.

Importance

Monitoring the Hedge Ratio helps assess how effectively your organization is shielded against adverse market movements. It balances risk mitigation with potential benefits from favorable conditions, safeguarding financial stability.

Retrospective hedge effectiveness

Retrospective Hedge Effectiveness evaluates how well your hedging strategies have performed after implementation.

Definition

This KPI assesses how effectively hedging instruments have offset exposures during a specific period by analyzing the correlation between changes in value of the hedged item and the hedging instrument.

Importance

Tracking this KPI provides insights into your risk management practices. It helps you:

• Validate hedging strategies: Confirm that hedges perform as intended.
• Enhance risk management: Identify discrepancies and adjust strategies.
• Meet regulatory requirements: Ensure compliance with accounting standards.

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Regular monitoring enables informed decisions and maintains financial stability amid market volatility.

Time taken to confirm deals

Measuring the Time Taken to Confirm Deals is vital for assessing the efficiency of your treasury operations. This KPI captures how long it takes to finalize financial transactions.

Why it matters

Lengthy processing times can delay cash inflows and outflows, impacting liquidity and financial stability. Identifying process bottlenecks ensures funds are available when needed, supporting better cash management and reducing financial shortfalls.

How to improve

Implementing technology solutions can reduce the time required to confirm deals. Advanced treasury management software automates tasks, minimizes errors, and accelerates transactions, helping you maintain a strong financial position in 2024.

Asset/liability mismatch ratio

The Asset/Liability Mismatch Ratio measures how well your company's assets and liabilities are aligned in terms of maturity.

Why it matters

Monitoring this ratio is essential for managing interest rate risk and ensuring liquidity. An imbalance can lead to cash flow challenges, making it harder to meet short-term obligations. By closely monitoring this KPI, you can identify potential gaps, align maturities, and reduce financial risks.

Improve your treasury strategy for 2024

By focusing on these critical KPIs, you improve your treasury operations, enabling strategic decisions and maintaining a competitive edge in 2024. Stay ahead of industry trends and enhance your organization's financial performance and treasury management with Ramp. Request a demo to see what we can do for your business.