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Best in Class Treasury Solution in the Middle East Winner: Microsoft

Published: Jul 2019

 

Photo of George Zinn and Rahul Daswani, Microsoft.

Rahul Daswani

Structured Finance Manager

UAE

Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realise their full potential.

Microsoft reaps early rewards from launch of novel payment solution

The challenge

The benefits of digital transformation are realised over time and enterprise customers look for payment solutions for the investment that will meet the project payback period. While Microsoft typically offers terms of 30-60 days for software purchases, customers look for payment terms that can solve multi-year budget/cash flow requirements.

In most developing markets like the UAE, Microsoft sells to customers through ‘resellers’ or distribution partners. Microsoft Worldwide Payment Solutions (WPS) group developed an innovative solution that allows customers, when purchasing via its resellers, to make monetary commitments to Microsoft cloud and simultaneously sign up for extended, multi-year payment terms backed by a financial partner.

The solution

To implement the solution, Microsoft needed a bank with strong structuring capabilities in receivable financing and the ability to underwrite credit risk in local markets. Abu Dhabi Commercial Bank (ADCB) was chosen to provide coverage to customers across a range of industries as the bank has a focus on technology customers.

ADCB and Microsoft structured an agreement whereby a novel trade finance solution uses non-recourse assignment of receivables in combination with Microsoft’s sales offering to customers who purchase cloud products from any of its resellers. The solution removes friction from the purchase transaction.

Extended payment terms of three to five years enable the customers to match their payments over the Microsoft license duration. As a value proposition, the solution has been highly appreciated by customers, especially when they commit to Microsoft cloud purchase for digital transformation benefits over multiple years.

Microsoft is moving beyond transaction reselling via resellers to a true partnership philosophy. The novel payment solution removes financing and administrative burdens and allows it to concentrate much more on co-selling opportunities. The company is also able to manage its own working capital and risk as it does not have to wait to be paid by customers and resellers.

Best practice and innovation

Unlike traditional receivable financing, Microsoft’s unique approach is focused on receivable financing for sales not directly invoiced by Microsoft but rather by its distribution ecosystem. To achieve this, Microsoft constructed a legal framework under which it created a new contractual payment obligation for the invoices with enterprise customers, integrating extended payment terms and assignment rights into purchase negotiations.

Actioning cross-border financing solutions with long tenors (over three years) in high credit risk markets like the UAE is a challenging task and demanded close collaboration between senior leadership of Microsoft and the bank. Microsoft teams, including finance, legal and accounting, collaborated with the bank’s counterparts to conceptualise and set up the contractual framework needed to progress the solution to live transactions.

Key benefits

The solution is able to provide long-term financing to indirectly invoiced customers which matches the cash flows expected from usage of products over the lifecycle. It is a ground-breaking way to support Microsoft resellers’ working capital and strengthens its relationship with both resellers and customers. It is boosting Microsoft sales and helping it in competition against other cloud providers. Most importantly, the solution places no additional working capital burden on Microsoft.

The solution was formalised in December 2018 and the first large multi-million dollar deal was executed in February 2019. Multiple deals are in progress, with expectations of significantly large size deals to be executed within the first six months of its availability. It is scalable in other geographies and the project team is in advanced discussions with banks to roll out the model in other emerging markets.

The WPS group aims to support the broader Microsoft strategy of growing its cloud business. With Microsoft having this year announced a large investment in the Middle East – notably two data centres in the UAE – the payment solution is an instance of WPS providing such strategic support.

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