Role of the Finance Function in the Financial Management for Corporates (2024)

Table of Contents

The Finance Function in Corporates

We frequently read about companies’ financial performance in terms of earnings, asset valuations, debt, equity, and other metrics. These indicators show how well the company is performing financially. Consider the individuals that enable these performance metrics the next time you hear about them, which are the finance and treasury operations of corporations.

Before we go any further, it’s important to note that the Treasury or Finance department does not materialize overall financial success, which is defined by numerous strategic, operational, and financial management. Rather, the finance function’s job is to maintain track of and document numerous aspects of financial management in corporations.

Finance and treasury are also in charge of tax calculations, social security payments, payroll, receivables, and payables management, and in recent years, the emergence of the treasury function has meant that they are also in charge of foreign exchange management and hedging, which has become necessary as a result of globalization, with many corporations now actively dealing in multiple currencies and hedging.

The External Functions of the Finance Department

The finance department’s tasks may be divided into two categories: external and internal financial management. The external function includes all actions relating to paying suppliers, vendors, and other stakeholders who do business with the corporation.

Furthermore, the finance department manages receivables, which entails following up with clients and customers who owe the company money for services done. Aside from that, the finance department is in charge of employee social security payments, which are made each month or quarter (depending on the country’s legislation) into 401(k) accounts in the United States and Provident Fund Accounts in India.

Furthermore, the finance department is in charge of remitting TDS (Tax Deducted at Source) collected from employees to the appropriate government accounts. Above all, the finance department communicates with the bank accounts that the company maintains.

Indeed, having a single banking relationship in an “Umbrella” style, where the corporation interacts and works with a single bank for all of its financial needs, has been the standard in recent years.

Role of the Finance Function in the Financial Management for Corporates

The Internal Functions of the Finance Department

The finance department’s internal tasks are equally vital since it oversees payroll processing and ensures that employees are paid on schedule. Payroll is, without a doubt, the finance department’s most visible engagement with employees.

Consider the personnel working in the isolated regions (the finance department in many multinationals is normally set apart in glassed enclosures for diligence and regulatory reasons) to get your income paid on schedule the next time your salary is credited.

Furthermore, the financial department’s internal tasks include the processing of reimbursements for travel, eating, and hospitality, same-city transit, incentives, and any other advantages due to workers. When employees’ vouchers and invoices need to be cashed, this is likely the largest reason why they either appreciate or criticize the finance department.

This takes time in many companies because not only are finance people overworked, but they also have to undertake due diligence before processing payments. As a result, the next time you have a bill to pay, you might consider the many processes and permissions required before sending a letter or posting a message on the organization’s Bulletin Boards.

The Treasury Function

The external and internal functions of the finance department have been explored. In recent years, several multinationals, as well as local corporations that operate internationally, have added the Treasury Function to the finance department’s responsibilities.

Simply expressed, Treasury is responsible for handling foreign exchange payments and guaranteeing that the company does not lose money as a result of exchange rate swings. Indeed, people who have received payouts in dollars or euros would cash them at a favorable exchange rate.

Similarly, Treasury’s responsibility is to guarantee that the corporation does not lose money, and it accomplishes so via managing hedging and escrow accounts. Because of their global payments, most corporations have busy treasury desks in their offices across the world.

The majority of the time, employees are uninformed of this job because Treasury employees are situated in financial capitals such as New York, London, and Mumbai, rather than in operational offices. Furthermore, hedging and treasury management data are frequently given in yearly reports that many employees do not read, leaving them with little knowledge of this critical job.

Conclusion: The Finance Departments are Like Ants

Finally, the finance department functions as a pump, ensuring that money and commerce move freely throughout the system. Even though the finance department is a support role that is not in the spotlight like marketing or project management, they are critical gears in the machine that keep the wheels oiled and the business running.

Some liken the finance function in corporations to ants, who go about their business silently and tirelessly. To summarize, just as one needs the services of a financial counselor from time to time, all workers require the services of the finance department, particularly when they see money in their accounts for paychecks or expenses.