The challenge

Microsoft wanted to enable local currency financing in Africa for cross-border software sales. Microsoft cloud has more global coverage than any other cloud provider and the company is conscious that many of its customers would benefit from extended payment terms.

In growth markets like Africa these needs are more acutehowever options to enable the same are limited.

The solution

To further enhance support for investment Microsoft made in the launch of its t data centre in South Africa, Microsoft also enabled an innovative customised solution in South Africa which via a single application, addresses multiple customer needs, including providing extended payment terms (ie working capital needs), the ability to pay in local currency (eliminating FX risk) and building the transaction as part of the purchase process itself (ie seamless digital experience within the Microsoft ecosystem).

Microsoft wanted to to enable transformation of its standard payment terms into multi-year extended terms, including instalment payments. The solution was built around a non-recourse receivables financing model and Microsoft needed a bank with demonstrated skills in financing solutions and the ability to underwrite credit risk in South Africa.

“We needed to develop a new local bank relationship, documentation legal framework for cross-border financing in South Africa while our partner bank had to validate our operating model for underwriting a credit programme which would provide three-year payment terms.” explains Rahul Daswani, Group Manager, GTFS.

Its customers in South Africa purchase software licenses in US dollars. However, the underlying functional currency is ZAR so the company is subject to FX risk. USD/ZAR has been particularly volatile due to geo-political issues in South Africa, so while extended terms from this solution could support working capital, it also needed a solution to mitigate FX risks/costs.

During the COVID period, the subject of protecting cash flow and mitigating FX risks has become more important for corporates and having this solution in the toolkit for sales deal closure makes Microsoft’s account team more competitive, as it is able to offer extended payment terms together with local currency payments as a package.

Best practice and innovation

The solution has delivered a first-class customer experience with financing integrated with software purchase enabling end-to-end paperless transactions and digital signatures from all parties.

It has transformed US dollar cross-border sales into local currency and extended payment term arrangements in a challenging geography.

Various teams from its business, finance, legal, tax and accounting functions across South Africa, London, Ireland and Seattle came together in a ‘One Microsoft’ approach to collaborate with the South African bank which also worked across relationship, legal and operations teams to conceptualise the solution.

Key benefits

• Impactful use of financing as a tool to drive sales growth.
• Financing transaction process is completely paperless.
• Ability to expand its commercial offering in South Africa, through ZAR payment options.
• Success in South Africa allows Microsoft to consider expanding into other countries on the African continent.

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