The finance department is the one that manages the resources of a company. He controls the treasury, investments and risks, in addition to the financial planning of the company and the disclosure of its results.
The function of the finance department is to guarantee resources so that the company can fulfill its objectives, remaining active and competitive and guaranteeing not only immediate profits, but also in the long run.
The structure and routines of the finance department depend on the size and activity of the company. In a micro enterprise, its function is usually performed directly by the owner.
In a large company, there is a responsible sector that, because it plays a vital role in the smooth running of the company, is usually directly linked to management.
The format of the finance department and its organization chart vary according to the needs of the company. However, it is possible to identify some basic attributions, although, in some companies, certain sectors may have their own departments.
Finance department roles
The finance department is responsible for dealing with all matters relating to finance, with a view to achieving the company’s objectives. Allowing managers to have tools to make decisions, such as cutting costs or investing.
Among the functions of the financial department are treasury, control of accounts payable and receivable, accounting, planning, tax management, risk control and disclosure of information to investors. See details for each of these assignments.
This sector of the financial department is responsible for the company’s cash flow, that is, it controls the cash inflows and outflows daily. As part of the cash flow is done electronically, the treasury also manages the company’s bank accounts.
The management of accounts payable controls the maturity of the company’s commitments, such as utility bills and payments to suppliers, for example in order to avoid delays and penalties.
It is also responsible for controlling receipts. This includes verifying that customers are up to date with their obligations, that the bills issued by the company were paid on time and, if necessary, triggering the collection mechanisms.
While the treasury works with cash flow, accounting controls the company’s equity and its variations.
A company’s equity consists of its assets (assets and rights that it owns) and liabilities (its obligations).
In the first group are real estate, goods, equipment, cash effectively in cash and amounts receivable, such as payment for the sale of goods. The second group, on the other hand, includes debts and unpaid accounts.
It is from the relationship between assets and liabilities that a company’s profit or loss is calculated. That is why accounting records are an important tool, as they provide data for decision making by the financial manager.
With the data organized by accounting, it is possible to make the financial planning of the company, ensuring a healthy budget and identifying when it is time to invest or reduce costs.
Planning outlines goals for the company’s future, projects how much it will need to invest to achieve them, and helps to identify where the resources for that can come from.
The finance department may be responsible for assessing the market, foreign exchange, credit and operations risks of the company itself, among others. Risk management is necessary to anticipate them, allowing the appropriate measures to be taken in a timely manner to avoid problems or reduce their impact.
If there is no own tax department, which deals with the calculation of taxes payable and compliance with tax requirements, this function is usually assigned to the company’s financial department.
This sector, however, is more than just a taxpayer, since it has the task of identifying the most favorable tax regime, in order to prevent the company from spending more than it could with taxes.
The financial department is responsible for adopting a transparency policy, which is directly linked to the organization and the clear and detailed disclosure of its accounts. These measures are necessary to increase investor confidence.
What is Compulsory Deposit?
Compulsory depositing, also known as reserve requirements, is a practice adopted by monetary policy, where the Central Bank retains part of the economy’s money through commercial banks.
This measure is used with the objective of reducing the amount of money in circulation, reducing the resources available for bank loans in the country.
In addition, with compulsory collection, the government seeks to maintain the purchasing power of the currency in the country.
How Compulsory Depositing Works
For compulsory collection, part of the money deposited in commercial banks is mandatorily destined to the Central Bank.
The mandatory amount is defined by a rate proportional to the amount of deposits. When the economy needs to decrease the amount of currency in circulation, the government increases this rate, further reducing that amount.
As it is necessary to have more currency in circulation, the Central Bank reduces this rate, leaving commercial banks with more resources to offer credit.
Compulsory deposits regulate different types of deposits, such as:
- Demand deposits;
- Time deposits;
- Savings account deposits;
- Additional requirement (which includes an additional one from the previous three);
- Deposits and Guaranteed Resources.
There are also other types of reserve requirements that the Central Bank can carry out, according to the monetary policy adopted.
The capital collected becomes a reserve asset of commercial banks, which are deposited with the Central Bank. In periods of higher demand, this causes interest rates to rise in banks.