Photo of James Hayward and Ashish Bhardwaj, Microsoft.

This solution uses an Escrow account to leverage the huge online revenue opportunity which Microsoft identified. The project, named Gallacake, demonstrates how treasury can help a huge, matrixed organisation like Microsoft to bring multiple teams together to deliver a solution for the entire ecosystem and how treasury is now viewed as a trusted adviser.

The challenge

Until March 2015, Microsoft and its service provider’s finance teams were managing high level escrow reconciliation, with treasury playing more of a partner role rather than leading or owning it. Realising the complexities and the impact it can have on the company’s assets, the treasury team stepped up to lead the digital transformation. This resulted in the following changes:

• Introduction of new processes with its provider (21V/Blue Cloud).
• Automatic Cash Reconciliation System (CRS).
• Defining clear roles and responsibilities of:
  • The service provider.
  • Operation Finance.
  • Subsidiary Finance.
  • Approval chain of command.
• Establishing clear SLAs and ownership at each and every stage, with a clear escalation matrix.
• Strong audit process.

The solution

Project GallaCake enables the offer of O365 and Azure to Chinese customers sold via Microsoft China. Sales are made via a Chinese reseller, service provider, who serves as the operating entity (OE) to comply with Chinese law regarding keeping data on-shore. Customers subscribe through the service partner in local currency, and have their data hosted locally in the partner’s data centres.

Ashish Bhardwaj, Group Credit Manager explains, “With a huge online revenue opportunity, this strategy was significant and the execution of the project was very unique considering the strict Chinese policy on data centres and customer data hosting.”

Microsoft introduced this business model and the obvious complexities raised unique challenges including substantial treasury risk for the business. To mitigate these risks, they introduced an escrow account between Microsoft and 21V. This account was owned by the partner, with the end customers paying into the escrow account. All the payments from the escrow account were reconciled and at the end of every month, the agreed amount would be released from the escrow account into Microsoft’s account as well as their partner. HSBC was appointed as the banking partner. Since this was owned by the service partner, they had to create a process to reconcile the entire order-to-cash process with the escrow accounts to make sure all the end customers’ payments were being correctly remitted into the escrow account and all the payments out of the escrow account were accounted for and approved by Microsoft.

Best practice and innovation

The new escrow reconciliation process enables Microsoft to better protect their cash whilst providing strong controls in a market famous for its volatility as well as improving cash flow. This cutting edge solution has delivered:

• Higher cash collections

  As depicted below, since the roll-out of this reconciliation, the cash collections have increased by 186% from Q415 to Q416 compared to Q314 to Q315.

  • Q314 TO Q315 > US$27.9m.
  • Q415 to Q416 > US$79.87m.

• Strong audit control

  Zero incidence of usage of escrow funds for erroneous payments.

• 100% SLA payments

  Able to get the remittances into MS bank accounts before end of month. No more random approvals down the chain of command and HSBC.

• Seamless migration of escrow account from 21V to Blue Cloud

  With the new escrow process, Microsoft have been able to successfully close the partner escrow account and migrate the balances to Blue Cloud account, thereby saving thousands of dollars in management/maintenance fees in addition to the complexity of multiple account reconciliation.

• Better forecasting

  This new process was a tremendous help in providing solid cash forecasting for the global treasury team.

• Growth enabler

  With accurate cash forecasting and more cash, the subsidiary is able to scale up more business/investments.

Bhardwaj concludes, “Project Gallacake has demonstrated just how treasury can help a large matrixed organisation to bring multiple teams together for a solution for the entire eco-system and how treasury is now a trusted advisor.”

Key benefits

• Improved processes.
• Better forecasting.
• Supports business growth.