Jim Scurlock, Senior Manager, Global Cash Planning explains, “the past five years have presented new obstacles for international treasury management as we adapted to events such as the Great Recession, Eurozone crisis, Arab Spring and most recently capital and foreign exchange (FX) controls.”
Microsoft prides itself in running a centralised treasury for more than 350 subsidiaries in 118 countries. Each month Microsoft treasury wires well over a billion dollars to support the working capital expenses of more than 200 operational subsidiaries ensuring they have just enough cash to support their operations. For years, the overall variances were more than 30%. With more than one billion dollars in the system each day, over forecasting by hundreds of millions put Microsoft at heightened counterparty, country and fraud risk. Treasury realised it needed to revamp its company-wide cash forecasting process in order to improve its overall working capital.
The sheer size of Microsoft’s international presence and subsidiary network was one of the biggest challenges they faced. They required more than 200 subsidiaries to forecast all of their operating expenses monthly. Treasury knew in order to be successful it was imperative to partner across the company. The core project team held meetings with payroll, accounts payable (AP), tax, supply chain, and financial controllers in dozens of countries to drill down and identify current procedures and best and worst practices. In many instances it was determined that cash forecasting errors were a result of several underlying problems as follows:
Subsidiaries were forecasting based on historical data and not actuals.
Varying methodology and procedures for cash forecasting AP.
Limited or no visibility to very large direct debits for rent, tax, utility and other payments.
Limited visibility to supply chain and hardware expenses.
Limited or no engagement between the individual preparing the cash forecasts and the payroll, tax and AP teams.
Limited visibility to accounts receivable (AR) inflows.
With such a dynamic workforce, employees in their worldwide subsidiaries are often changing roles and contacts change over time in the various AP, payroll, and tax teams. Treasury knew that if it wanted to develop a standardised process it needed to create a solution that allowed for some consistency so when there are staffing changes, the financial controllers will know who to contact for information. Through treasury’s strategic partnership with the finance operations team, it successfully completed its objective of creating a new cash forecasting process that focuses on real-time data inputs from organisational stakeholders across the company in 118 countries.
Microsoft completely redesigned and implemented a new rolling three-month cash forecasting process for 200 subsidiaries in 118 countries. It reduced worldwide cash balances by more than $250m and reduced cash forecasting variances by 50% to 70% to less than 15% globally.
Scurlock concludes, “at an internal Microsoft Worldwide Finance Conference an award was presented to the Financial Directors of a couple of subsidiaries that had the best quarterly performance. The award was given to the best small, medium, and large subsidiaries (based on working capital expenses). By involving the key senior leadership teams across the company the necessary resources were given. Each team felt that they truly had a seat at the table and as a result they had a greater sense of ownership of the process and solution.”