How Enforcing Credit Limits Can Support Revenue Growth
At Microsoft, advertising has become an increasingly important source of revenue over the past few years. “Our search revenue encompasses both Bing [the Microsoft search engine] as well as revenue generated from a number of syndication deals on Bing-powered platforms,” said Jose Luis Marti, treasury team manager at Microsoft’s Global Online Credit Services (WOCS). “On our platform, we offer both display and search advertising, and in both cases it tends to be personalized based on the preferences of our customers and end users.
“It’s our job on the treasury team,” Marti continues, “to make sure that the number of impressions and searches a customer buys doesn’t exceed what they can afford to pay, which is determined by their credit limit. If we assign a credit limit of $100,000 to company X, they should only receive $100,000 in impressions or searches. Once that limit is reached, they will only receive no more advertising until they make a payment or get a higher credit limit.
When Microsoft first launched Bing, it hired a leading web services provider to manage the entire sales and order-to-cash process for its large and medium-sized search advertising customers. However, as Bing grew and its advertising revenue became increasingly important to the entire company, Microsoft saw a strategic advantage in integrating the complete management of this activity in-house.
“As the Bing platform became more relevant in the market, it began to face an increasing number of fraudulent attacks,” says Marti. “We are very risk averse. Two years ago, we decided to end the partnership with this web services leader in order to better control the management of our business, which includes fraud and customer credit risk. For this transition to work, the WOCS team needed to develop a process that would allow them to effectively manage credit limits and impressions served for Microsoft’s hundreds of thousands of search advertising customers worldwide.
First, Marti and her team conducted a needs assessment, consulting with approximately 80 stakeholders across engineering, sales, support, treasury, legal and finance. They found that some stakeholders were concerned that tighter management of customer credit risk would hinder sales. “It was crucial to ensure that the project would not disrupt revenue in any way,” says Marti.
The project team defined three key objectives for the Credit Limit Enforcement (CLE) system they were developing: increase profit margins by reducing bad debt write-offs, improve financial risk management and simplify processes. To alleviate stakeholder concerns, they planned a gradual rollout of the system, starting with a controlled sample of customers and then expanding to encompass more customers as the process proved successful.
Today, Microsoft’s system sets and enforces credit limits for all of the company’s search advertising customers, automating as many of these processes as possible. For each new customer, the customer or Microsoft account manager (if the transaction generates enough revenue to earn an account manager) completes a credit application, providing financial and contact information. The system supplements this information with data from other Microsoft divisions with which the customer has done business, as well as data from third parties such as external credit bureaus. Then, the system applies analytics and machine learning capabilities to the compiled information, to determine the customer’s financial stability and set a credit limit.
“All of this happens automatically in about 92% of cases,” says Marti. “The rest is subject to manual review, but because we have significantly reduced the proportion requiring human intervention, we can usually assess the creditworthiness of the customer within a day. If the manual review reveals a credit problem, we will offer the customer other payment options, such as prepayment, payment by credit card, or perhaps a security deposit. We always give potential customers an option to do business with Microsoft. »
When the credit decision is made, the applicant, whether the customer or the account manager, automatically receives an email containing this information. At this point, the client can begin scheduling search advertising on credit, for payment after the fact.
From this point, the CLE system continuously monitors the customer’s spending. If expenses approach the established credit limit, the system can automatically reconsider this threshold. “It will take a number of factors into consideration,” says Marti. “It will review the customer’s payment history with Microsoft and may again pull third-party data. It will also consider when Microsoft last performed a credit check on the customer and the extent of the last increase.
The WOCS team has established rules regarding the amount and frequency of credit limit increases. If the CLE system judges that a customer deserves a higher limit and the increase meets these rules, the system will automatically provide the customer with additional credit. “It’s similar to how credit card companies automatically increase credit limits,” says Marti. “Our goal is to help our customers spend more with Microsoft whenever possible.”
If the CLE system determines that a customer’s credit limit cannot be increased, the customer and Microsoft account manager will receive email notifications when spending reaches 70%, 80%, and then 90% of the Credit limit. When spending reaches 100% of the credit limit, Search Network advertising activities are automatically paused, but will resume as soon as the customer makes a payment to bring spending back below the credit threshold.
Throughout these processes, the CLE system monitors all transactions for fraud. Unexpected spikes or changes in Search Advertising usage result in seller and customer emails being sent. The purpose of these communications is to reassure the customer that the unusual behavior is legitimate.
Using the CLE system, the Microsoft Search Advertising Group was able to proactively increase customer credit limits significantly. “The business is growing faster than it otherwise would have because we allow customers to spend more,” says Marti. “If we didn’t have the functionality to automatically increase credit limits, WOCS processes could lock in good revenue. Our goal is to identify cases that could represent a loss in the future.
At the same time, he adds, the system has significantly improved the efficiency of credit and collection processes: “Now each collection specialist can handle three to four times as many accounts as before. In addition, the system educates customers and motivates them to pay faster. Overall, we’ve significantly reduced bad debt write-offs for Microsoft’s search advertising business year-over-year, and we’re well below industry standards.
Selling the sales team on these processes took time at first, but Marti says it was worth it. “Many companies today, even very large companies, fail to enforce credit limits,” he says. “This can lead to significant losses in a consumer-based business like this, where expenses can add up very quickly. Not only do we reduce bad debts and encourage customers to spend more, but built-in fraud alerts , combined with the system’s better visibility into customer spending, allows us to recognize immediately when we are the target of fraud or when a customer is close to insolvency. our search advertising activity which we believe is well above the industry average.”
Thus, this project established the WOCS team as a provider of not only credit limit activation, but also true business activation, and it prepared Microsoft to continue to grow its market share in the search advertising.