Photo of George Zinn, Microsoft and Meg Coates.
Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realise their full potential.
Microsoft runs a centralised treasury and leverages an in-house cash centre to facilitate the intercompany payments through a non-cash settlement process for more than 450 legal entities. Historically, several groups outside of treasury were responsible for settling an average of 35,000+ transactions with more than US$50bn in notional value for various types of intercompany flows; cost plus commissions, royalties, dividends and other types of AR/AP.
For treasury, this led to a lack of visibility on both the timing and amount which needed to be set aside to support these cash flows. As a result, a billion dollars of cash was being reserved to support intercompany payment processing each month. Additionally, treasury faced the challenge of ensuring that any FAS 52 FX P&L impacts remained limited, especially for non-USD functional entities.
To maximise the return of cash and improve the corporate governance on all worldwide intercompany settlements, Microsoft treasury decided to partner with corporate accounting, finance operations, cash application and engineering groups to revamp the execution structure of intercompany settlements. The key objective is for treasury to have full visibility and control over all worldwide intercompany payments. It was also agreed that the go-forward standard settlement would be twice per month, major event at mid-month (enabling timely payments after financial book closure), and month-end event minimising intercompany accruals.
Treasury investigated several approaches with operations and compliance groups, including updating intercompany settlement procedures and regularly providing training to more than 500 users across the globe. However, with 500+ global users and constant rotation in responsibilities, human error is inevitable and long-term cost too high to maintain the targeted efficiency. As a result, the teams collectively decided that a systematic mechanism must be put in place to effectively execute treasury’s goal. The strategy was to re-engineer the intercompany payment tool, enabling the treasury team to be the gatekeeper, with all transactions being authorised by treasury before settlement through the in-house cash centre.
Developed a new workflow with additional controls: the intercompany settlements procedures have been modified from enter > post and completed solely by global users to global user enter > manager review > treasury release to complete the posting, and only treasury has access to perform releasing to finalise payments.
Implemented a new treasury dashboard to extract data from multiple sources across systems and populate comprehensive information such as country restriction, functional currency and balance impacts for the paying and receiving entities.
Established a new process to identify status. Once an intercompany payment request is submitted, the treasury dashboard continuously reflects the processing status, including pending review, released, posted or failed, and GL completion. Email notification will be sent to the correspondent users to remind the pending actions or confirm the payment status.
Developed a new rolling 12-month calendar to specify intercompany settlement schedule and enable the tool to notify global users for the upcoming deadline.
Developed a new mechanism to standardise over US$50bn of companywide intercompany settlements and maximise cash returns.
Improved operational efficiency: with the revamped tool that provides full visibility on intercompany payments, treasury no longer encounters unplanned funding issues.
Minimise FAS 52 FX P&L impacts: the newly implemented dashboard enables treasury to significantly improve FX risk management.
Enhance compliance: a workflow has been implemented to review the intercompany payment requests prior to execution by treasury. This significantly reduces the number of reversals occurred previously and eliminates unnecessary follow-ups. This has also significantly reduced the risk of wiring the incorrect amount of funds to a restricted market.