From the Arab Spring to the Great Recession, and from theEurozone crisis to Hurricane Maria, global events over the pastdecade have strained the ability of U.S.-based multinationals toensure uninterrupted liquidity for employees and operations inremote locales.

"The last 10 years have been very interesting for anybody ininternational cash management," says Jim Scurlock, head of cashmanagement for Microsoft. "We experienced a few incidents thataffected our ability to move money across borders. In most cases,we saw the writing on the wall and moved our cash out early. Butafter repeatedly seeing similar issues in different places, wefocused on reducing our cash around the world and minimizing thecounterparty and sovereign risks that could threaten ourliquidity."

Microsoft treasury launched an initiative to both minimize cashbalances and develop a contingency action plan that differentgroups within treasury could use in responding to operational-riskevents. Minimizing cash balances involved a three-prongedapproach.

First, Scurlock says, treasury engaged IT, corporate accounting,and tax in building a multiyear project plan for expandingMicrosoft's zero-balance account (ZBA) structure. They also workedclosely with their enterprise resource planning (ERP) vendor, SAP,and with Citibank, which was one of their global relationshipbanks. "We were one of the first pilots of a multi-country,multi-currency ZBA structure," Scurlock says. "We were able to helpCiti design their Global Cash Engine product and create theirroadmap for expansion into new countries. There was a deeppartnership there."

Together, Microsoft and Citi worked on expanding the company'sexisting ZBA structure to integrate more than 700 accounts across30 countries. "The volume was very significant," Scurlock says.Automating cross-border cash sweeps created challenges. "Whathappens if you have a holiday in one country, or different bankoperating hours, or different expectations for central bankreporting?" Scurlock asks. "We did a lot of research with our taxteam and statutory controllers. We walked through examples ofliquidity challenges we had faced in the past and built consensuson what we needed to do."

Scurlock cites the concerted effort treasury made to buildconsensus as a key factor in the project's success. "We showed ourA/P [accounts payable], payroll, and tax teams the benefits of ourplan," he says. "They saw that they would no longer be dependent ontreasury to fund each account. This meant they could focus onmaking payments on their desired schedule, without worrying aboutwhether the funds were there."

The next challenge was to fullyautomate the accounting. Previously, SAP automatically recordedcross-border wire transfers, but each journal entry was triggeredby a Microsoft employee's initiation of the wire. "The challengewith our ZBA structure was that there wouldn't be any initiation ofa wire to kick off the journal entries," Scurlock explains. "We hadto come up with a way to trick SAP so that it would create ajournal entry when transaction information arrived in an electronicbank statement, rather than the moment we initiated thetransaction."

Now, Microsoft subsidiaries around the world make payments onaccounts that are part of the ZBA structure. Their XML or SWIFTpayment messaging includes very specific text that shows up in theelectronic bank statement and tells the corporate treasury andaccounting teams which legal entity the transaction should bebooked to. Scurlock's team can offset transactions in the in-housebank. Then, at the end of every day, Citi initiates a booktransfer—or, in some instances, a physical transfer—that bringseach bank account balance back to zero. The project has been sosuccessful that Microsoft has extended the same concept to accountswith Bank of America and HSBC, as well.

The second aspect of Microsoft's initiative to reduce liquidityrisk involved setting up multi-bank target balance sweeps out ofhigh-risk countries. "In some countries, we need to have a localbank account for tax and payroll payments, but we were notcomfortable keeping money in some of those accounts for longperiods of time because the sovereign risk was relatively high,"Scurlock says. "We worked with our banks to create what isessentially a second-layer ZBA, in banks that normally wouldn't bepart of our cash concentration structure." Every day, cash isautomatically swept out of local bank accounts in higher-riskcountries and into the corporate ZBA structure at Citi.

The third prong of the liquidity-risk initiative was to expandMicrosoft's pay-on-behalf-of (POBO) structure. "We implementedpay-on-behalf in 2009," Scurlock reports. "But because of changesin tax law and in some of our legal entities, we were able toexpand the pay-on-behalf structure to support a lot more of ourpayables and to include some Asian currencies, as well."

Together, the three parts of the initiative significantlyreduced the amount of cash Microsoft needed to maintain inhigh-risk regions of the world. "Prior to implementing thisstructure, we were funding our subsidiaries at a rate of between$1.5 billion and $2 billion every month," Scurlock says. "Thosefunds were just sitting in bank accounts. By implementing real-timefunding wherever we could, we were able to take almost $1 billionof cash out of the system."

In addition to minimizing the cash at risk companywide, thetreasury team simultaneously undertook development of a contingencyframework that outlines the steps different groups within treasuryneed to take in a crisis scenario. "The goal was for treasury andenterprise risk management to adapt faster in the event of adisaster," Scurlock explains. "We needed clear guidelines todefine, for example: If an issue were to occur in a specificcountry, what benefits would we provide to our employees? And howwould we do that?"

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Under the new framework, specific employees within Microsoft'sglobal cash management, cash operations, treasury operations,capital markets, foreign exchange, financial risk, and creditservices teams take responsibility for monitoring certain types ofrisk. "We encourage each person to be focused on a specificregion," Scurlock says. "That way, if things start to pop up orthere are currency issues, we can very quickly mobilize andidentify the risks we see in those countries and the actions thatwe need to take. We can pull in other stakeholders and discuss:'With X risk floating up in this country, should we initiatepayroll early so that employees have liquidity? Should we sweepfunds out of the country? What are other things we should belooking to do?'"

All in all, these projects have greatly increased preparednesswithin the Microsoft treasury team. And the importance of the BoyScout motto—"Be prepared"—is a lesson Scurlock thinks othertreasury professionals can take away from his experience. "It'seasy to be prepared for the last crisis," he says. "It's harder tobe prepared for what's coming next. To do that, treasury needs tohave conversations ahead of time with all the teams that might beimpacted. Figure out what you can do now to minimize counterpartyrisks and liquidity risks. Walk through some sample scenarios.Deep-dive into those examples and look at how you would addressthem. Honest self-reflection is critical to effectively preparingfor the unknown."