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Key Treasury Management Metrics and How to Use Them


Measuring financial performance regularly can help implement strategy.

Corporate treasurers are increasingly being asked to help management implement strategy and achieve the firm’s long-term goals. One way they can measure progress toward achieving strategic goals is by using key performance indicators or KPIs.

Because treasurers touch nearly every aspect of the business, they may need to select a wide variety of KPIs to get an accurate picture of the company’s finances. Doing so will help them gain an understanding of how to improve treasury management and how to mitigate financial risks to the company.

There are four main categories of treasury metrics: liquidity and cash management, debt management, operational performance, and error reporting. Each category has a number of important KPIs that can contribute to a greater understanding of the company’s performance.

Liquidity and Cash Management KPIs

Liquidity and cash management KPIs are the metrics that give you insight into the business’s cash status and cash flows. By keeping close tabs on cash balances, and by understanding how and when cash flows into and out of the business, your department can better support the needs of the organization.

Here are a handful of liquidity or cash-focused KPIs to consider:

  • Percentage of Cash Held in Non-Interest-Bearing Accounts

Knowing how much of your cash is held in non-interest-bearing accounts can help you see whether your cash is doing its job. If too much of your cash is tied up in non-interest-bearing accounts, you can talk to your bank about moving more of your cash into accounts that earn interest.

  • Cash Reserves (in Days)

By dividing cash reserves by the business’s estimated average daily expenses, you can see how many days you can remain in operation using the cash you have on hand. This can be a helpful metric to know for disaster preparedness and risk assessment. If the market declines sharply or you face other emergencies, you will know how many days your cash can get you through.

  • Cash Conversion Cycle (in Days)

The cash conversion cycle predicts the length of time it takes for you to convert inventory into sales. With this information, you can estimate when you’ll have cash in hand.

  • Levered Free Cash Flow

Levered free cash flow (LFCF) shows how much cash remains after meeting your financial obligations. LFCF can help you better understand your business’s profitability, which is helpful if the business is considering new capital investments.

Debt Management KPIs

Without proper management, debt can commandeer the resources of even successful organizations. These debt management KPIs can provide insight into how much of an impact your debt has on your company’s financial outlook.

Debt Mix

Your debt mix calculates how much of your debt is made up of short-term obligations. This helps you anticipate cash needs and gives you lead time to explore solutions if debt payments are looming when cash is tight.

Interest Rate vs. Benchmark

Looking at your debt instruments, compare your all-in interest rate to that of a predetermined benchmark. The benchmark you choose could be an industry average, for example, or a goal set by your leadership team. If you consistently miss your mark, you can recommend making changes to your debt makeup.

Available Credit Percentage

Calculate how much of your credit you are utilizing by dividing your total credit drawn down by your total credit available. The ideal available credit percentage will depend on your industry and the amount of risk your management is willing to accept.

Operational Performance KPIs

The treasury department should pay attention to how fiscal management impacts operations. If fiscal control is too loose, the business’s operations could deteriorate. Here are KPIs that help you determine if the business’s fiscal practices are helpful or harmful:

Ratio of Electronic Payment Receipts

Electronic payments are almost universally preferred by all parties. Businesses prefer to accept payments electronically so they can have nearly instantaneous access to cash, and customers prefer to pay electronically for the security and convenience. Tracking a KPI year-after-year that measures the use of electronic payments can help businesses see if they are trending toward a fully electronic payment system.

Ratio of System-Generated Payments

Accounts payable automation is becoming more common because businesses are beginning to see the benefits. When done well, A/P automation can save your department time and reduce errors.

Time Required to Determine Daily Cash Balance

It is not always simple to determine a cash balance, but business leaders often need that information during their planning meetings. If you can create a KPI that tracks how long this calculation takes you, you can seek to reduce your time spent on the calculation month-over-month or quarter-over-quarter.

Error-Reporting KPIs

Minimizing is important to all department heads, but it is essential for the treasury department. If you can minimize errors, you will have even tighter control over your cash reserves, and the data you provide management will be even more accurate.

  • Payment Error Rate

To calculate your company’s payment error rate, simply divide the number of errors observed by the number of payments you reviewed.

  • Paid on Time Rate

Paying your obligations in a timely manner can help reduce fines and late payment fees.

  • Accuracy of Cash Forecasts

This KPI can help you see if your forecasting methods are accurate.

You cannot improve on a metric that you have not yet measured. The first step to adopting any new KPI is to ensure you can collect data that is both accurate and useful to making decisions. If possible, narrow down the metrics to identify which ones are key indicators of your performance. With KPIs in hand, the treasury department and the business as a whole will be set up for success.

To learn more about this and other treasury tools, contact your relationship manager, treasury management officer, or find a banker to learn more.

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