The challenge

As more and more enterprise customers looked to leverage Microsoft cloud to make new revenue streams possible, Microsoft India’s strategic focus was to grow its cloud business. However, despite being offered terms of between 30 and 60 days for software purchases, Microsoft’s customers constrained by working capital often request longer payment terms to finance any deal. In such a challenging credit environment, where partners’ balance sheets are small and software financing is a new area, when partners tried to optimise working capital, it led to deals being smaller, or even lost.

The solution

Microsoft Worldwide Payment Solutions (WPS) group developed a Payment Solution by bringing in a financial institution for individual deal financing. It allows enterprise customers to get up to 360 days extended payment terms, including instalment plans as part of the purchase process from Microsoft partners.

It engaged with Tata Capital Financial Services Limited (TCFSL) which has an established expertise in distribution channel financing. The partnerships between the pair structured a framework under which Microsoft recommends deal payment terms to partners, and enterprise customers to TCFSL.

Microsoft then implemented the credit assessment model, taking into account this enhanced due diligence when underwriting deal-specific payment terms for financing. Microsoft was then able to approve a matching payment schedule to partners, who pass forward the terms as part of the purchase process to the enterprise customer. Microsoft uses an extended payments programme to collect payments, whilst its partners collect from enterprise customers and repay TCFSL as per the approved payment schedule.

Best practice and innovation

• Innovative model of invoice discounting with payment schedule up to one year and instalment options for end customers, including the option of a 0% interest rate.
• Unique approach of mapping the supply chain cycle from supplier through distribution partner to end customer, and then for individual deals deliver customised extended payment terms directly to the end customer.
• Time was invested in the process mapping transaction flows, vetting the legal framework and documenting roles and responsibilities before the framework model was signed.
• Microsoft wanted to use agile/sprint methodology to develop a fast-track AP solution. By using a ‘One Microsoft’ approach, various Microsoft teams across the world (US, London and India) all came together to provide inputs and create a cross functional project team (finance, legal, tax, accounting, sales). These teams collaborated with TCFSL’s relationship/legal/operations teams to conceptualise and successfully launch the contractual framework, all within three months.

Key benefits

The project was initiated in October 2018 with an ambitious launch date for late 2019. The team however was not just able to launch but also execute the first deal for US$1m in January 2019 where Payment Solution was instrumental in Microsoft winning that deal.

Over the next six months, multiple deals for around US$12m, across various partners, have been executed and the solution has generated strong credibility.

Payment Solution is a new model for emerging markets which enables its sales team to focus on competitive business opportunities, rather than spending time on managing cash flow issues of customers and partners. The costs of financing are based on time, value for money, and are deal specific. Costs can be paid by either Microsoft or its customer, and this leads to a healthy diversified return on investment.

Customers can also align purchase payments to business cash flows over the life cycle of the purchase. Partners appreciate support from Microsoft as they can close deals within customer budget cycles and this is already positively impacting sales.