Treasury Policy for Mid-Market Companies

Executive summary

A treasury policy is a short written document that says who can move cash, where it is held, how much liquidity the company must keep, what it may invest in, how it may borrow, and how all of that is reported. A mid-market company rarely needs a treasury department. It does need these decisions written down, approved, and followed, because the lack of a written rule is how a single wire error, a bank concentration, or a covenant surprise becomes a board-level problem.

This guide gives a treasury policy template in nine sections:

1. Purpose and scope.
2. Roles and authority.
3. Liquidity and minimum cash.
4. Bank accounts and structure.
5. Payments and controls.
6. Counterparty and investment rules.
7. Borrowing and covenants.
8. Foreign exchange and interest rate exposure.
9. Reporting and review.

Treat this as a template to adapt with the board and counsel, not as a finished policy. Your credit agreement, bank mandates, articles of incorporation, and the law that applies to you set what is allowed. Tax, accounting, and legal implications of cash structures (for example, moving cash between entities or jurisdictions) are matters for your advisers. The numbers in the examples are illustrative placeholders. Set your own with the CFO, the board, and your lender documents in hand.

When to use this

Use this guide when:

• Treasury decisions today depend on one person and no written rule.
• A new credit facility, acquisition, or sponsor reporting requirement is coming.
• You have several bank accounts, entities, or currencies and no single view of cash.
• An audit, lender, or insurer has asked for a written cash controls policy.
• A payment error, fraud attempt, or near miss has prompted a review.
• You are moving from a crisis cash routine (see liquidity crisis triage) to a steady one (see the cash flow operating system playbook).

You do not need a large policy. A well-run company of modest size can cover everything below in five to eight pages.

Diagnostic questions

Answer these to see what the policy must cover first.

1. How many bank accounts exist, in which entities, and does anyone hold a complete, current list?
2. Who are the signatories and online banking administrators, and when were they last reviewed?
3. Does any payment above a certain amount need a second approver, and is that enforced in the bank, not just in practice?
4. What is the minimum liquidity the company agreed to hold, and who set it?
5. How much cash sits with one bank, and does anyone know the limit that would be uncomfortable?
6. Is excess cash invested anywhere, and under what rules?
7. Which credit agreements have minimum liquidity, cash dominion, sweep, or restricted-payment terms that affect cash decisions?
8. How are new vendors' bank details verified and changed, and who can change them?
9. Do you have foreign currency receipts or payments, and who decides whether to hedge them?
10. Who sees a weekly cash report, and what does it contain?
11. When was the last time the policy, if one exists, was read and approved by the board?
12. What would happen if the person who runs treasury was unavailable for two weeks?

Rule of thumb for reading answers: gaps in questions 2, 3, and 8 are control gaps and come first. Gaps in 4 and 7 are liquidity and lender gaps and come second. Items 5, 6, and 9 matter more as the cash balance and international exposure grow.

The framework: policy in nine sections

Two design principles help. First, separate duties so the person who prepares a payment is not the person who approves or releases it. Second, write rules as triggers and actions: when X happens, who does Y by when.

Step-by-step process

1. Inventory accounts, signatories, and facilities. List every bank account, entity, currency, signatory, online banking administrator, credit facility, and any lender control (for example, a sweep or blocked account). Owner: Controller. Output: a complete list tied to bank confirmations.
2. Read the lender and bank documents with counsel. Note covenants, liquidity minimums, restricted payments, intercompany transfer limits, and reporting duties. Owner: CFO and counsel. Output: a short summary of constraints the policy must respect.
3. Set the minimum liquidity method. Choose how to define liquidity (cash plus undrawn availability) and how to set the floor (a number of weeks of disbursements, any lender minimum, and a buffer for forecast error). Owner: CFO. Output: a draft floor and the logic behind it.
4. Define triggers and responses. Set levels above the floor (normal, watch, action) and write what happens at each. Owner: CFO. Output: a trigger table.
5. Write the payment authority matrix. Set approval levels by payment type and amount, with dual approval above a threshold, and test them against the bank's own permissions. Owner: Controller. Output: the matrix, and a record of bank mandates that match.
6. Write vendor bank-change rules. Require independent call-back verification to a known number before any bank detail change, and separate the person who requests it from the person who approves it. Owner: Controller. Output: a short procedure.
7. Set counterparty and investment rules. Decide the maximum share of cash with any single bank, minimum credit quality for banks and money market vehicles, permitted instruments, and maximum tenor. Owner: CFO. Output: a limit table, approved by the board.
8. Set borrowing authority. State who can draw on or repay facilities, who can sign new debt, and what must go to the board. Owner: CFO. Output: a borrowing authority paragraph. For borrowing base mechanics, see revolver borrowing base management.
9. Decide on FX and rate exposure. Describe the exposures, who measures them, and whether any hedging is permitted. Hedging brings accounting and legal consequences, so bring advisers in before using derivatives. Owner: CFO. Output: an exposure statement and a hedging rule, which can be "no derivatives without board approval."
10. Set reporting. Define the weekly cash report, the monthly liquidity and covenant report, and the annual policy review. Owner: CFO. Output: a report layout and calendar.
11. Review with counsel and the board. Adapt the draft to your agreements and governance, and record approval in minutes. Owner: CFO and board chair. Output: an approved policy with an effective date.
12. Test it. Run one exercise within 30 days, such as a mock vendor bank change or a liquidity trigger breach, and fix what does not work. Owner: Controller. Output: a short test log.

Templates

Policy outline (copy into a document)

Payment authority matrix (placeholders to replace)

Set thresholds with the CFO and board and match them to the bank's permissions.

Liquidity trigger table (placeholders to replace)

Counterparty limit table (placeholders to replace)

Worked example

Illustrative. The numbers are made up to show the method and are not recommendations or benchmarks.

A distributor defines liquidity as cash plus undrawn availability, where availability is the lower of the revolver commitment and the borrowing base, less amounts drawn.

Average weekly disbursements are $1.5M. The CFO proposes, for board approval, a floor of four weeks of disbursements and a watch level of six weeks:

• Floor: 4 × $1.5M = $6.0M.
• Watch level: 6 × $1.5M = $9.0M.
• Today's liquidity of $6.7M is below the watch level and above the floor by $0.7M ($6.7M − $6.0M).

What the operator does with this:

• The company is in the watch band. The trigger table calls for a daily cash view and a review of discretionary spend, and the CFO reports the position at the next board meeting.
• The borrowing base, not the commitment, limits availability. An extra $1.5M of commitment would add nothing, while improving eligible receivables and inventory would. The CFO asks the team to review reserves and ineligibles.
• The CFO checks the credit agreement with counsel, because any minimum liquidity covenant could be higher than the internal floor, and the internal floor must never sit below a contractual requirement.
• The floor method (weeks of disbursements) and buffer are revisited quarterly and whenever forecast accuracy changes.

Metrics and KPIs

Setting targets without invented benchmarks. Set the floor by method: weeks of disbursements that covers your own timing risk, any contractual minimum liquidity in your credit agreement, and a buffer sized from your own forecast error. Set limits for counterparties by the board's risk appetite and the guidance of your bank and lender documents, not by a number copied from another company. For payments outside the matrix and unverified vendor changes, the target is zero, and any exception is reviewed.

Common mistakes

1. Copying a large company's policy. A thirty-page policy no one follows is worse than five pages that are enforced.
2. A floor below a lender minimum. Check the credit agreement first, with counsel.
3. Policy that the bank does not enforce. A dual-approval rule that exists only on paper fails when the bank's mandate allows one person to release a wire.
4. No vendor bank-change control. Payment redirection through changed bank details is a common fraud route. Verify by call-back to a known number.
5. Ignoring concentration. All cash with one bank is a risk the board should choose, not drift into.
6. Counting trapped cash as liquid. Cash in another entity, a blocked account, or restricted by a lender may not be available.
7. Hedging without advice. Derivatives bring accounting, legal, and cash consequences. Obtain advice and board approval first.
8. No test. A policy that has never been exercised is a theory.
9. Never reviewing. Update after any new facility, acquisition, new bank, or structural change, and at least annually.

AI prompt assistance

AI can help with drafting and formatting. It does not know your agreements or your bank's mandates. Provide your own information, and have counsel and the board review the result.

1. Draft the policy from your inputs.

Using this outline (pasted) and these facts (accounts, entities, banks, facilities, current approval practice), draft a treasury policy of no more than six pages. Leave bracketed placeholders for every threshold, limit, and trigger. Do not state any legal or tax conclusion.

Check: confirm every fact against the bank and lender documents, and have counsel review before approval.

2. Compare the policy with actual payments.

Here is a payment authority matrix and a list of last quarter's payments over [your threshold] with preparer, approver, and releaser. Identify any payment that did not follow the matrix and summarize by type.

Check: confirm each exception against the bank's approval log.

3. Compute liquidity and triggers.

Given cash by account (with a note on any restricted or trapped cash), the revolver commitment, borrowing base, amounts drawn, and average weekly disbursements, compute liquidity, weeks of liquidity, and the position against a floor of [your weeks] and a watch level of [your weeks]. Show each step.

Check: recompute availability as the lower of commitment and borrowing base less drawn amounts, and confirm the trapped-cash treatment with the Controller.

Implementation guide

Governance: the board approves the policy and any change to the floor, the counterparty limits, and borrowing authority. The CFO owns the policy and its exceptions. The Controller owns the account list, payment controls, and vendor changes. Review the policy annually and after any structural change. Keep a log of exceptions with approvers.

What to expect: the first benefit is usually the account inventory and the bank mandate check, which often reveal signatories who left and approval limits no one remembers. The liquidity floor and triggers take longer, as they depend on a reliable 13-week forecast.

Downloadable assets

The policy outline, payment authority matrix, liquidity trigger table, and counterparty limit table above are designed to be copied into a document or spreadsheet. The 13-week cash flow builder supports the forecast that sets the buffer. Any template must be adapted with your board and counsel before use.

Related resources

• Cash flow operating system playbook: the weekly cash rhythm the policy supports.
• Covenant compliance and headroom tracking: keeping the floor above contractual minimums.
• Intercompany and multi-entity cash pooling: moving cash between entities, with tax and legal input.
• Revolver borrowing base management: availability, eligibility, and reserves.
• Cash management guides: the full set of cash and liquidity guides.

Frequently asked questions

What is a treasury policy?

A treasury policy is a written document, approved by the board, that sets who can move and invest cash, where it can be held, how much liquidity must be kept, how borrowing is authorized, and how cash is reported. For a mid-market company, five to eight pages covering controls, liquidity, and reporting is usually enough.

How do you set a minimum liquidity level?

Define liquidity as available cash plus undrawn availability, then set the floor by method. Use a number of weeks of average disbursements, add a buffer sized from your own forecast error, and never set it below any minimum liquidity in your credit agreement. Review the floor quarterly and have the board approve it.

What should a payment authority matrix include?

A payment authority matrix lists payment types and amount bands, with who prepares, who approves, and who releases each. It should require dual approval above a threshold, separate the preparer from the releaser, and include a call-back rule for vendor bank-detail changes. The bank's own mandates must enforce it.

Do mid-market companies need a treasury policy?

Yes, if cash decisions rely on one person or unwritten habits. A short policy protects against payment errors, fraud, bank concentration, and covenant surprises, and it answers lender and audit questions. It does not require a treasury department, only decisions written down, approved, and followed.

Who should approve a treasury policy?

The board, or its audit or finance committee, should approve the policy, with the CFO as owner. Counsel should review it against your credit agreement, bank documents, and governing documents, and advisers should review any tax, accounting, or hedging implications before it takes effect.

How this works in a System of Performance

A treasury policy is only as good as the evidence that it is followed. Account lists, approval logs, liquidity calculations, and lender terms usually live in separate places, and exceptions are found at audit time. A Performis routine can take on a recurring job like this, with the scope and fit agreed with you: it works from the records your team supplies, prepares the work for your named reviewer, and keeps each approval on record. If you want to see where your own policy gaps sit, bring it to us as a launch partner.