From the November 2011 issue of Treasury & Risk magazine

Gold AHA Winner in Cash Management

The ZBA Way to Concentrate Cash: Microsoft

George Zinn, treasurer and corporate VP, and Anita Prasad, general manager, U.S. treasury capital management George Zinn, treasurer and corporate VP, and Anita Prasad, general manager, U.S. treasury capital management

Microsoft has 350 legal entities operating in 118 countries (and using 1,000 accounts at 100 different banks), so concentrating excess cash efficiently and funding those operations just in time is a formidable challenge that the $70 billion company addressed with eye-catching success.

Long a leader in the use of automation, Microsoft treasury was still using a time-consuming manual process to fund and collect from 175 actively funded subsidiaries in 2010. Funding usually meant wiring funds to the subsidiaries twice a month and wiring back excess balances when local regulations permitted. Treasury knew that daily sweeps to zero balance accounts (ZBAs) was ideal, but doing it manually took time, and the time zone differences made same-day sweeps impossible for Europe and Asia. The key to better control and liquidity management would be a global ZBA structure with same-day automated sweeps and just-in-time funding.

For the accounting to work, the ZBA transfers would have to include customized texts for each transaction, something no ZBA structure was able to provide. But Microsoft found a willing partner in Citi. Together they developed a new product, called Global Concentration Engine, that can incorporate customized texts into the ZBA transactions, explains Jim Scurlock, cash planning manager.

The old wire transfers created journal entries in Microsoft’s SAP system that ZBA transfers did not create. So Microsoft’s project team worked with SAP to develop a way to get the ZBA customized texts to feed SAP with the data needed to create journal entries automatically.

“We had to make key changes so that the SAP system could handle the new ZBA reporting,” Scurlock says.

Because the project required considerable IT resources, the treasury team had to lay out its complete vision in a business requirement document and convince IT and senior management that it should be a top priority, says George Zinn, Microsoft’s treasurer and corporate vice president. The treasury controllers group carried out six months of accounting tests to ensure that there would be no operational glitches.

And it worked. Now Microsoft has a ZBA structure that sweeps each account to zero every day and creates journal entries with no manual involvement. And the solution has no negative impact on the operations of finance staffs in the subs, Zinn says. From day one in August 2010, treasury recovered an average of $105 million a day that formerly had languished in the subs’ accounts. Now that money is placed immediately in productive investments. Within a year, the harvest of useful cash is projected to grow to $250 million a day.

In addition to the liquidity pickup, the project cut costs as a result of a 41% decrease in wire transfers. The ZBA solution costs about $25 per account a month, compared with about $200 for wires. And previously the high cost of cross-border wires made it uneconomical to move small balances. With the much less expensive ZBA arrangement, it now pays to sweep those balances.

Implementation at this point depends on Citi, which only offers the Global Concentration Engine in London and the U.S. Microsoft’s first-stage rollout was limited to 120 accounts in the U.K and New York, but the company plans to expand the project as Citi expands its capabilities and expects to add 15 to 20 countries before its fiscal year ends in June 2012.

Efficiency improved as both the global cash management and accounting staffs saved many hours a week. “We learned through benchmarking that many large multinationals reconcile activity in spreadsheets and then journal entries are uploaded by accounting teams,” Zinn reports. “Our ZBA solution reconciles the transactions every day and posts them to the subsidiaries’ in-house cash center account, and it all happens automatically.”



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