What controllers need to know about treasury management in pre-treasury teams

Working capital is the difference between a company’s current assets (e.g., cash, inventory, accounts receivable) and current liabilities (e.g., accounts payable, short-term loans).

The formula is simple:

Working Capital = Current Assets – Current Liabilities

Working capital management is the process of managing these resources to meet short-term obligations and remain operational.

Simple Example:

Imagine a small retail business. Their inventory (current asset) is worth $50,000, while their accounts payable (current liability) sits at $30,000. Their working capital is $20,000. If they poorly manage accounts payable or overstock their inventory, they risk liquidity issues that could jeopardize daily operations.

Why businesses need to manage working capital effectively

Proper working capital management ensures financial stability. It’s a balancing act—too much working capital may suggest inefficiency, while too little can lead to liquidity crises. Effective management provides the flexibility to meet immediate financial obligations and invest in growth opportunities.

The link to cash flow optimization

Working capital management is inextricably tied to cash flow. By optimizing accounts receivable, accounts payable, and inventory, businesses can accelerate their cash conversion cycle (CCC)—the time it takes to convert investments in inventory into cash received from customers. Essentially, a shorter CCC means smoother cash flow.

Impact on profitability and liquidity

• Profitability improves as funds tied up in working capital can be reinvested into high-ROI opportunities.
• Liquidity reduces the risk of insolvency, ensuring the company can cover its short-term liabilities.

How it works

1. Monitor assets and liabilities: track cash, accounts receivable, inventory, and accounts payable. 
2. Analyze ratios: use ratio analysis to measure working capital management effectiveness.
3.  Make decisions: use the information to make decisions about short-term spending and debt. 
4. Improve processes: use software to automate processes like invoicing and payments. 

Types of working capital

To create financial strategies tailored to your business, it’s critical to understand the different forms of working capital:

1. Permanent working capital 

Permanent working capital is funds that are consistently required to support basic operational needs (e.g., maintaining inventory). These funds remain constant irrespective of fluctuations in business activity levels and are vital for sustaining long-term operations. Properly managing permanent working capital ensures the business operates smoothly even during periods of economic uncertainty.

2. Regular working capital 

These are funds needed to cover routine operational expenses in running a business. Regular working capital is critical to maintaining liquidity and meeting short-term obligations without disruption.

3. Reserve working capital 

Reserve working capital is funds set aside to address unexpected expenses or financial contingencies due to unforeseen circumstances. Maintaining adequate reserve working capital safeguards the business against potential disruptions and assures operational stability under challenging conditions.

4. Fluctuating working capital 

Fluctuating working capital requires careful planning and monitoring to effectively allocate resources during peak and off-peak periods. Proactively managing these variations helps prevent cash flow issues and supports business operations.

5. Gross working capital 

Gross working capital refers to the total current assets available within a business, including cash, accounts receivable, inventory, and other liquid assets. By effectively managing gross working capital, the organization has sufficient resources to meet short-term obligations while enabling smooth operational processes.

6. Net working capital 

Net working capital is the difference between a company's current assets and current liabilities, which indicates financial health. Maintaining positive net working capital is essential for meeting short-term liabilities and supporting day-to-day operations.

5 Key components of working capital

‍To streamline working capital management, businesses usually focus on the following  critical elements:

1. Current assets

Current assets encompass resources a company can convert into cash within a short period, typically a year. These assets include i) cash and cash equivalents ii) accounts receivable, inventory, and iii) short-term investments. Managing current assets is crucial for maintaining liquidity while covering immediate financial needs. These resources allow businesses to manage operations seamlessly, respond to market demands, and support growth opportunities. Proper oversight and optimization of current assets directly contribute to a strong financial position. 

2. Current liabilities

Current liabilities include i) accounts payable and ii) short-term loans, which represent the company's immediate financial responsibilities. Accounts payable refers to amounts owed to suppliers or vendors for goods and services already received, while short-term loans typically involve borrowed funds that must be repaid within a year. Correctly managing these liabilities is essential to maintaining the organization's financial health and smooth daily operations.

3. Net working capital formula

Net Working Capital = Current Assets - Current Liabilities

‍Net working capital is a critical measure of a company's short-term financial health, operational efficiency, and liquidity. A positive net working capital means that the company has enough current assets to cover its current liabilities, meet financial obligations, and invest in growth opportunities. On the other hand, a negative figure could mean potential liquidity issues and necessitate immediate attention to protect the business’s stability.

What should be excluded from working capital?

Items that aren’t part of a company’s short-term assets or liabilities are not part of working capital and include: fixed assets (e.g. real estate and equipment that can’t be converted into cash within a year, long-term debt and lease obligations that go beyond a year, retained earnings or common stock, and patents and trademarks).

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Benefits of effective working capital management

Why should organizations prioritize working capital management? Read on for the key benefits: 

Improved cash flow & liquidity 

Effective working capital management ensures a steady and reliable cash flow, allowing organizations to maintain liquidity for operational needs and unforeseen expenses. By optimizing receivables, payables, and inventory levels, companies can reduce financial strain and avoid costly short-term borrowing. This proactive approach not only supports day-to-day operations but also provides flexibility to take advantage of strategic investment opportunities that power long-term growth and stability.

Better risk management 

Effective risk management is critical for mitigating financial uncertainties and safeguarding organizational stability. By analyzing potential threats and implementing robust contingency plans, companies can minimize the impact of adverse events on their operations. Proactive identification and evaluation of risks allow businesses to allocate resources strategically, reducing exposure to volatility.

This structured approach enhances decision-making processes and promotes resilience, ensuring sustained performance even in challenging market conditions.

Enhanced operational efficiency 

Streamlining processes, optimizing resource utilization, and reducing redundancies across the organization enhance your operations, improve productivity, and create better outcomes.Through working capital management, your business can create clear workflows and continuously monitor performance to align operations with strategic goals. This not only drives cost-effectiveness but also allows the company to quickly adapt to market demands for long-term success.

Stronger supplier & customer relationships 

Maintaining liquidity to meet its short-term obligations via working capital management means you’re making timely payments and fostering trust with suppliers. This reliability strengthens partnerships, leading to better negotiation terms and consistent supply chains. Similarly, optimized working capital enables businesses to offer favorable payment terms to customers, enhancing satisfaction and loyalty.

By balancing cash flow, businesses can create mutually beneficial relationships that support long-term growth and collaboration.

Challenges in managing working capital

While the benefits are clear, managing working capital is not without challenges:

1. Cash flow constraints 

Insufficient liquidity can lead to missed growth opportunities or delayed payments. Businesses often struggle to balance incoming and outgoing cash, particularly when dealing with fluctuating sales cycles or unexpected expenses. Additionally, relying on credit or slow-paying customers can exacerbate these constraints, straining operational efficiency.

2. Over-reliance on credit 

Excessive dependence on short-term financing can lead to high-interest costs. This can reduce financial flexibility and leave your businesses vulnerable during low revenue periods. Furthermore, it can create a cycle of dependency that hinders long-term growth and hampers the ability to invest in strategic initiatives.

3. Inventory management issues 

Poor inventory management disrupts cash flow, as excess inventory leads to increased holding costs, while insufficient stock can damage customer relationships and diminish brand reputation. Balancing inventory levels is critical to ensure liquidity and maintain operational stability. 

4. Accounts receivable delays 

Late payments from customers hinder cash flow and operational agility. These delays reduce the funds needed for day-to-day operations and strategic investments. Prolonged payment cycles may also increase reliance on external financing, raising borrowing costs and financial risk.‍

Strategies for working capital management

‍To overcome these challenges, CFOs and treasurers can adopt some of the following strategies:

1. Cash flow forecasting & budgeting 

Anticipate future cash needs to avoid shortfalls or surpluses. Tools like cash flow software can streamline projections. Regularly updating cash flow forecasts to align with changing market conditions and organizational priorities, for better decision-making. 

1. Inventory control techniques 

Implement just-in-time (JIT) or ABC analysis to maintain optimal inventory levels. These methods minimize holding costs and reduce the risk of obsolescence while ensuring that stock levels meet demand. Regular inventory audits and leveraging software solutions can further enhance efficiency and accuracy in inventory management.

3. Streamlining accounts receivable & payable 

Encouraging faster customer payments by offering early payment discounts, which improve cash flow and reduce outstanding receivables. Additionally, negotiating extended payment terms with suppliers gives you more financial flexibility and improved management of accounts payable.

4. Leverage financial tools & technology 

Use automated solutions like supply chain finance platforms and electronic invoicing to improve efficiency. These tools streamline payment processes, reduce errors, and provide real-time insights into cash flow, fostering more informed decision-making.

Differences between related concepts

‍Lastly, it’s crucial to disentangle working capital management from related concepts:

Working capital vs. cash management 

Working capital compares current assets to current liabilities to understand whether the finance team can pay bills and other short-term liabilities. Cash flow measures the cash inflows and cash outflows, as shown in the cash flow statement. 

Working capital vs. capital budgeting 

Capital budgeting focuses on long-term strategic investments, while working capital management is concerned with the short-term, operational aspects of managing a company's current assets and liabilities.

Take control of your working capital today

Working capital management isn’t just a financial principle—it’s the backbone of operational efficiency and business growth. For CFOs, VPs of Finance, Controllers, and Treasurers, understanding and implementing these strategies is vital for maintaining liquidity, optimizing cash flow, and securing a competitive edge.

Find gaps in your working capital strategy? Prioritize stronger relationships with suppliers, streamline receivables, and harness the power of automation to elevate your game. A balanced working capital approach today can fuel unprecedented growth tomorrow.

To get more insight into the state of AI and automation in cash flow management in 2025, we commissioned a survey of 200 senior finance professionals. Its purpose is to shed light on their current methods, challenges and priorities.

This report was administered online by Global Surveyz Research, an independent global research firm. The survey is based on responses from CFOs, VPs Finance, Directors/Heads of Finance, Controllers, and Treasurers across a mix of industries including tech, E-commerce, real estate, asset- based companies, hospitality, and manufacturing.

Survey participants hailed from companies with an ARR of $50M+ and treasury departments that include 4+ people (25%), 1-3 people (25%), or no treasurers (50%), in the US, UK, DE/FR, and MEA.

What the survey found: Increasing pressure on finance teams to improve efficiency, but continued caution about adopting AI solutions 

The survey revealed that 33% of respondents faced internal operational risks, such as fraud or system breakdowns, over the past year. Additionally, 32% highlighted regulatory constraints, while 27% cited debt obligations with near-term maturities as significant challenges. This convergence of internal and external pressures is compelling organizations to rethink their approach to cash flow management.

To stay resilient, finance teams are focusing on achieving real-time visibility and implementing proactive measures to mitigate risks before they escalate.

According to the survey, areas such as audit and compliance, expense management, transaction categorization, and cash flow forecasting were rated equally as high priorities for AI implementation. These technologies are streamlining traditionally labor-intensive processes, enhancing accuracy, and freeing up valuable resources.

Larger enterprises, in particular, find AI indispensable, as its ability to process vast transaction volumes reduces the burden on finance teams and allows them to focus on strategic decision-making.

The adoption of AI is not without its challenges. Concerns around cost, regulatory compliance, and data reliability remain top of mind for many finance teams. However, the benefits of automation—from error reduction to improved forecasting capabilities—are undeniable. By investing in scalable, AI-driven solutions and prioritizing data quality, companies can future-proof their operations and ensure they are prepared to navigate an increasingly complex financial landscape.

As the 2025 survey highlights, embracing innovation is no longer optional for finance teams. By leveraging AI to overcome liquidity challenges and optimize operations, organizations can transform their cash flow management processes and secure a competitive edge in an era of rapid change. 

Download the full survey report here. 

At growing companies, or companies with lean finance teams without a dedicated treasury function, controllers often find themselves wearing multiple hats. Without a dedicated treasury team, the responsibility of treasury management often falls on their shoulders. This expanded role requires controllers to not only excel in traditional financial functions but also to master the complexities of managing liquidity, mitigating risks, and ensuring financial stability.

Here’s what controllers in lean pre-treasury teams need to know about taking ownership of treasury management:

Juggling complex treasury operations, with lean resources

Without a dedicated treasury team, controllers must take charge of several critical treasury functions:

• Cash Management: Ensuring the organization has sufficient liquidity to meet short-term obligations while avoiding excessive idle cash. This involves cash flow forecasting, tracking accounts receivable and payable, and optimizing cash reserves.
• Risk Management: Identifying and addressing financial risks, including currency fluctuations, interest rate changes, and credit risks. Controllers may need to implement basic hedging strategies and stay vigilant about market trends.
• Debt Management: Managing loans, credit lines, and other forms of debt effectively, balancing costs and flexibility while ensuring compliance with loan covenants.
• Investment Management: Making decisions about surplus funds to maximize returns while maintaining liquidity and mitigating risks.

Understanding and taking ownership of these functions empowers controllers to ensure the organization’s financial health in the absence of a treasury team.

Prioritizing cash flow visibility

For controllers handling treasury responsibilities, cash flow visibility is paramount. Accurate, real-time insights into cash positions enable controllers to:

• Identify and address liquidity gaps.
• Plan for short-term financing needs.
• Optimize working capital.

Leveraging tools like cash management systems and enterprise resource planning (ERP) software can provide controllers with a consolidated view of cash across accounts, currencies, and business units. This visibility is crucial for effective decision-making.

Utilizing technology as a resource to work more efficiently

Controllers in lean teams must rely on technology to handle treasury tasks efficiently. Key tools and innovations include:

• Treasury Management Systems (TMS): Automating processes like cash forecasting, payment approvals, and risk assessments to reduce manual work and enhance accuracy.
• Robotic Process Automation (RPA): Streamlining repetitive tasks such as bank reconciliations and cash position reporting.
• Artificial Intelligence (AI) and Machine Learning (ML): Using AI and ML for predictive cash flow analysis, fraud detection, and scenario modeling.

These technologies not only save time but also help controllers manage treasury responsibilities effectively, even in lean setups.

Mitigating financial risks without dedicated resources

Managing risks becomes more challenging without a dedicated team, but controllers can still establish effective practices:

• Develop straightforward policies for managing foreign exchange and interest rate risks.
• Stay informed about regulatory requirements to ensure compliance.
• Utilize basic hedging techniques or financial products to mitigate risks where appropriate.

Controllers should also focus on regular reporting and analysis to monitor risk exposure and adjust strategies as needed.

Collaborating across functions

In lean organizations, collaboration is essential. Controllers must:

• Work closely with finance and operations teams to gather relevant data.
• Align treasury responsibilities with broader financial goals.
• Communicate regularly with executive leadership to ensure transparency and alignment.

Collaboration helps bridge resource gaps and ensures that treasury management is integrated into the overall financial strategy.

Ensuring regulatory compliance and strong governance

Even in lean teams, compliance cannot be overlooked. Controllers must:

• Stay updated on tax regulations, financial reporting standards, and anti-money laundering (AML) requirements.
• Implement strong internal controls to prevent fraud and errors.
• Use technology to streamline compliance tasks and ensure accuracy.

By focusing on governance and compliance, controllers can safeguard the organization’s financial integrity.

Balancing strategic and operational roles

Controllers managing treasury functions must balance day-to-day operations with strategic planning. This includes:

• Evaluating short-term and long-term financing options.
• Planning for growth initiatives, such as capital investments or expansions.
• Assessing the financial implications of key business decisions.

By adopting a strategic mindset, controllers can contribute to the organization’s financial success while managing immediate treasury needs.

Adapting to dynamic financial environments

Economic and market changes can pose significant challenges for treasury management. Controllers in lean teams must:

• Monitor macroeconomic trends and their potential impacts.
• Adjust strategies in response to changing interest rates, inflation, or currency fluctuations.
• Build contingency plans to address unexpected disruptions.

Adaptability and proactive planning are crucial for navigating an ever-changing financial landscape.

Supporting controllers in pre-treasury teams to manage complex treasury operations

Panax is designed for lean teams with complex treasury needs, so it is a perfect tool for controllers who need to manage treasury. Panax utilizes automation and AI to reduce manual work and increase strategic insights, so controllers can have full visibility over all of their cash. Panax makes cash forecasting and budgeting easy, even without a dedicated team. Panax generates reports so that controllers can get a bird’s eye view of their cash situation, but also deep dive into specific entities or currencies, so they can avoid cash risks and optimize liquidity. Get a Panax demo here.