It should come as no surprise that Microsoft's 450-plus legalentities, which operate in 118 countries, engage in intercompanytransactions. But the scope of that activity is eye-popping: morethan 35,000 transactions, worth over US$50 billion, each year. “Weuse intercompany payments for everything from foreign subsidiaries'dividend payments to the corporate parent, to 'commissions' thatreimburse subsidiaries for products sold, to IP [intellectualproperty] royalties between business units,” explains Sunnie Ho,senior treasury manager in Microsoft's Global Cash Managementgroup.

A couple of years ago, all these payments flowed throughMicrosoft's in-house cash centers (IHCCs) in a non-cash settlementprocess, but treasury had limited visibility into thesetransactions. Timing was unpredictable, and the company had to keepmore than $1 billion in reserve to support intercompany cashflows.

“The subsidiaries would initiateintercompany payments at any time of the month,” Ho says. “Someonemight suddenly realize that one sub needed to pay another sub, sothey triggered an entry via the IHCC. We could not see who waspaying whom, how much, or for what reason until it happened, so wemight be surprised when all of a sudden someone triggered abillion-dollar transfer. It was non-cash, but we still needed to beaware. Sometimes funds would need to move between cash centers.Other times, the transactions would involve multiple currencies, sothey would trigger FX [foreign exchange] exposure for us.”

Another issue was that large transactions would sometimes leavetreasury scrambling to quickly review the paying entity's overallcash position and to find the necessary liquidity to fund thetransaction. “Some entities participate in more than one Microsoftportfolio,” Ho says. “So if their cash was sitting within oneportfolio, but they were settling intercompany payments using IHCCtransactions under a different portfolio, they would run intoissues. They wouldn't have the cash in the right place to make thepayment, and treasury would have to initiate a transfer betweenportfolios so the payment could go through.”

Treasury envisioned a better way of handling intercompanypayments: They wanted to move all intercompany settlements into thecentral treasury team and settle transactions monthly. To buildsupport for the plan, treasury worked with finance, accounting,operations, and cash application teams from across the company.

Numerous meetings among these groups over the course of a yearrevealed that the primary concern about the treasury proposal wasthat it would reduce business units' flexibility in makingintercompany payments. After much discussion, the stakeholdersagreed on a twice-monthly settlement schedule. “Compromise isimportant with a project like this, which is significantly changingan important, longstanding process,” Ho says.

Once the project team reached consensus on their major goals,they began working with Microsoft's engineering group to documentthe change requirements and plan a new workflow and a tool formanaging intercompany payments.

Now, when a Microsoft business unit needs to make anintercompany payment, a staff member opens the tool and enters allthe information needed to make an accurate journal entry for thetransaction: paying entity, receiving entity, currency, amount, andreference information. Then the request for intercompany payment isrouted to the business manager who is the correct approver for thetransaction.

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When the next bimonthly settlement period approaches, thetreasury team can review the payments in the pipeline and make surethat all the appropriate portfolios have liquidity to fund thosetransactions. To support this process, the intercompany settlementtool includes a dashboard that extracts data from different systemsto provide comprehensive information around intercompany payments,including each entity's country restrictions on movement of cash,functional currency, and the balance impacts for both the payingand receiving entities. This information helps treasury ensureliquidity is adequate and determine whether each submittedtransaction is compliant with Microsoft policies.

The dashboard continues to reflect the status of theintercompany payment request, including whether it is pendingreview; released, posted, or failed; or has a status of 'G/Lcompletion.'

“This workflow gives us visibility into the entire process,” Hosays. “We can see who inputs the information and who signs off, sowhen we have questions, we know who to reach out to. Wheneverything looks good, treasury can just hit a button and thousandsof payments will go to the IHCC.”