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It should come as no surprise that Microsoft’s 450-plus legal entities, which operate in 118 countries, engage in intercompany transactions. But the scope of that activity is eye-popping: more than 35,000 transactions, worth over US$50 billion, each year. “We use intercompany payments for everything from foreign subsidiaries’ dividend payments to the corporate parent, to ‘commissions’ that reimburse subsidiaries for products sold, to IP [intellectual property] royalties between business units,” explains Sunnie Ho, senior treasury manager in Microsoft’s Global Cash Management group.

A couple of years ago, all these payments flowed through Microsoft’s in-house cash centers (IHCCs) in a non-cash settlement process, but treasury had limited visibility into these transactions. Timing was unpredictable, and the company had to keep more than $1 billion in reserve to support intercompany cash flows.

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

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Meg Waters

Meg Waters is the editor in chief of Treasury & Risk. She is the former editor in chief of BPM Magazine and the former managing editor of Business Finance.

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