Growing too fast is a problem anyone would want to have, but for $7-billion eBay Inc. and its subsidiary PayPal, it caused a big problem: a huge funding gap created by a growing demand for working capital. Treasury was called in to figure out what was happening, and how to fix the problem.

Treasurer Jennifer Ceran assembled a cross-functional team, under the direction of PayPal Treasurer Ed Banas, which looked into the issue. What Banas and his team discovered was that PayPal was immediately funding credit card transactions by customers using extremely rapid clearing systems. But PayPal's banks and card administrators were not doing the same for it, leaving the Web-based payment solution too often holding the bag. Thus, the more PayPal grew, the bigger this funding gap became.

The problem was exacerbated with PayPal's rapid expansion into Europe and Asia. European regulators were requiring the company to maintain higher surpluses against customer balances than were required in the U.S. and credit card processing in Europe was also slower than domestically.By mid-2005, in Europe alone, the average working capital needs to fund the gap between receivables and payables had reached 24 million euros, which included an opportunity loss of interest income of over 700,000 euros a year. Treasury was covering this gap by actively managing inter-company settlement and foreign exchange swaps, but the problem was growing rapidly. By December of that year, it had more than doubled to 50 million euros.