Photo of Jim Scurlock, Barbara Harrison, Citi and Sunnie Ho.

Microsoft runs a centralised treasury for more than 350 legal entities in 118 countries. The company has more than 1,100 bank accounts in over 100 institutions worldwide. At the height of the recent global economic crisis, each dollar held in local subsidiary managed accounts faced increased counterparty risk, sovereign risk, foreign exchange fluctuations, and risk of fraud. The company changed that by automating its collection sweeps and implementing a just-in-time funding model for subsidiary disbursements.

To address these issues, and to reduce the exceedingly time-consuming and manual process of funding payroll for more than 200 subsidiaries, Microsoft’s Global Cash Management (GCM) and Global Cash Operations (GCO) teams worked with the company’s banking partner, Citi Global Transaction Services (GTS), to develop an appropriate strategy. “The company wished to reduce average daily balances by automating the collection sweeps and implementing a just-intime funding model for subsidiary disbursements,” explains Jim Scurlock, Senior Manager, Cash Planning at Microsoft.

A cross-border inter-company zero balance account (ZBA) structure was put in place. According to Scurlock, Microsoft’s treasury faced two significant obstacles in executing its plan. “The first was a need for ZBA structure with customised text capability. Although many multinational banks have a ZBA product, no bank offered a solution to contain customised texts in the transaction details. However, this is critical to the subsidiary identification function of Microsoft’s in-house cash centre.” The treasury partnered with Citi to develop and implement a new global cash concentration product called the Global Concentration Engine, which allows customised text to be included.

The second hurdle was the need for automated accounting. To date, there has not been an inter-company ZBA solution that allows automated accounting within an in-house cash centre. “If Microsoft were to automate the collection of sweeps and enable just-in-time disbursements for hundreds of accounts, the resources required to manually post accounting entries would be overwhelming,” says Sunnie Ho, Cash Planning Manager at Microsoft. “For that reason, the treasury department partnered with the internal IT team for 18 months to make a series of development changes to SAP.” Through this collaboration, the company managed to enable automated accounting via triggering of the general ledger entries based on the customised text that is included in the ZBA transaction.

With this new inter-company ZBA structure, the treasury has been able to maintain a zero balance with several hundred accounts in over 15 countries. “This has achieved 100% accounting automation, all at no cost to IT,” adds Ho. As a result of this solution, the company is now able to promptly transfer available balances to the parent accounts, thereby maximising investment return. Operational efficiency has also improved, saving treasury hundreds of hours in reviewing subsidiary cash balances and countless hours normally used for manually posting general entries due to automation. Since implementation, Microsoft has been able to achieve a reduction of more than $250m in average daily balances and an increase in monetary gains including over $250,000 in interest gains due to prompt collections. Further benefits include the enabling of cashless subsidiaries; reduced risks due to zero balances (which lowers sovereign risk); and a decrease in bank fees as a result of fewer wires.

In response to the European debt crisis in 2011 and more recent events, Microsoft’s treasury has been able to promptly put the company’s accounts in Ireland, Italy, and Spain into the ZBA structure. This has greatly reduced Microsoft’s cash exposure to high risk European countries. “This project truly allows Microsoft’s treasury to create an offensive strategy, mitigating risk instead of being on the defensive,” concludes Scurlock.