Bill.com Quietly Decided to Divert Customer Funds To Unwanted Bank Accounts

They put this change into their terms of service, and were quite evasive about it. Here's the notice of the change in the terms: "Schedule 2 (Accounts Receivable Service): We updated Section 1, Agent of the Payee; Receipt of Funds; Section 7, Expedited Payment Services Including Instant Transfer; and Section 8, Vendor Direct Service."[1]

Here are the old terms.[2] And the new terms.[3] The big changes are in the "Agent of the Payee" section.

Old text:

When You use the Accounts Receivable Service to originate ACH debits to Your Customer’s account or when You use Real Time Payments, You appoint Bill.com to act as Your agent in connection with the receipt of funds from Your Customer. Receipt of funds from Your Customer by Bill.com will be deemed to be receipt of funds by You, and will satisfy any payment obligations of Your Customer even if payment is not received by You.

New text:

When You use the Accounts Receivable Service, You appoint Bill.com to act as Your agent in connection with the receipt of funds from Your Customer. Receipt of funds from Your Customer by Bill.com will be deemed to be receipt of funds by You, and will satisfy any payment obligations of Your Customer even where You have elected to receive the payment from Your Customer through Our expedited payment services or are enabled to receive Vendor Direct payments or are enabled for a Bill.com Balance (collectively “Vendor Payment Methods”). When at least one of these Vendor Payment Methods is elected or enabled, You authorize Bill.com to designate a Bill.com account held for the benefit of Our customers as Your primary receiving account for receipt of funds for all payments or transfers made from Your Customers to You. The Bill.com account will serve as Your Bill.com primary and default account for receipt of the funds from Your Customers. All other bank accounts that You may have added to Your Bill.com profile as Payment Accounts will be secondary to the Bill.com primary account.

Note the new text:

You authorize Bill.com to designate a Bill.com account held for the benefit of Our customers as Your primary receiving account for receipt of funds for all payments or transfers made from Your Customers to You.

At this point, if you're a Bill.com customer, you need legal advice.

Questions to ask as a customer:

- Where is this Bill.com account held?

- Are you a creditor of Bill.com, or do you have a fiduciary relationship with Bill.com and actually own the funds in a shared bank account elsewhere?

- Does FDIC coverage extend to said shared account? (See this FDIC document.[3])

Here are Bill.com's financial statements filed with the SEC.[5] They're losing money at a rather high rate, $80 million in Q4 2021. Revenue and losses both increased substantially in the last year. They're already a public company, so the funding round phase is over. Their biggest expense is "Sales and Marketing", also about $80 million per quarter, which is how they manage to lose money in what ought to be a highly profitable business.

Their biggest asset is $3 billion in "funds held for customers", which, if they show that on their balance sheet, is not the property of the customer. It's money they owe their customers. They're acting as a bank.

Uh oh.

If you have substantial funds in Bill.com, having an accountant and a lawyer look really hard at those documents might be a good idea.

[1] https://help.bill.com/hc/en-us/articles/4422858850701-Update...

[2] https://web.archive.org/web/20211110201725/https://www.bill....

[3] https://www.bill.com/legal/terms-of-service

[4] https://www.fdic.gov/deposit/diguidebankers/documents/fiduci...

[5] https://www.sec.gov/edgar/search/#/category=form-cat1&ciks=0...

> Their biggest asset is $3 billion in "funds held for customers", which, if they show that on their balance sheet, is not the property of the customer. It's money they owe their customers. They're acting as a bank.

If they're showing those funds as an asset and not a liability, that's a not a good thing. They're claiming ownership of those funds... Personally I'd run away as fast as possible.

Without further investigation it reminda me a lot of Wirecard...

This comment (and Animats's parent comment) shows a fundamental misunderstanding of how a balance sheet works. Balance sheets balance: the funds are an asset, but there is a symmetrical liability due back to the customer.

We've long left "Move fast and break things" to "Move fast and steal things"

No one is stealing anything here.

It's more about what happens in bankruptcy.

Maybe. I wouldn't know for certain, because I am not a lawyer. But my understanding from working in this industry for a number of years is that under most state money transmitter laws customer funds are held in trust, meaning that in bankruptcy they are not actually company assets that can be assigned to debtors. Customers would have to be paid first.

In addition, it is very unlikely that the company would be allowed to go into bankruptcy. Right now, the company has ~$1 billion in cash of its own, net of debt, above and beyond customer funds. They can afford to take some losses as they continue to grow. Arguably, they should spend this capital on growth. Isn't this why they raised the money in the first place? Isn't it what their investors expect?

If their cash reserves diminish to the point where they cannot sustain or justify those losses, banking regulators will shut them down before dipping into customer funds even becomes a temptation.

Bill payment companies have existed for decades under this same regulatory scheme. Interest on float is an essential aspect of bill payment companies' profitability; for some companies, it exceeds their fee income. There is nothing that Bill.com is doing here that is not standard for the industry, and regulators know what to look for (after being burned in the past). If Bill.com went south in the way that you seem to be worried about, it would be a major scandal.

Yes they are.

Ok, what are they stealing?

It's a good thing, not a bad thing, that they have a separate line item on their balance sheet for funds held for customers. It means that they are not aggregating customer funds with the company's own cash.

Also, there is a precisely equal line item on the liabilities side showing "customer fund deposits". This is exactly what you would want to see if they were accounting for things properly.

This is not an attempt by the company to misappropriate customer funds. Bill.com is a money transmitter, and as such they are obligated to hold their customer funds in trust. This is one of the things that the state banking regulators that regulate money transmitters look at closely when they conduct periodic on-site examinations. If they tried to misappropriate customer funds, it would be detected within the year and they would be shut down.

Bill.com isn't acting as a bank here, but is instead switching over to a standard practice followed by money transmitters such as PayPal and Cashapp, etc., which is to maintain customer funds in their own trust accounts on their own balance sheets, and only forward those funds onwards to third-party banks when explicitly requested to do so by their customers.

Why would Bill.com do this? It's because interest rates are going up, and 3% annual interest on $3.3 billion is $100 million. If they can hold this money on their own balance sheet (and most likely invest it in US treasuries), then they can improve their profitability. By forwarding cash immediately to third-party banks, they had previously been leaving a lot of money on the table.

For what its worth, money transmitter regulations do place restrictions on how entities are permitted to invest customer funds held in trust. They can keep that money in bank accounts, but they can also invest those funds in US treasuries; the permitted investments are explicitly enumerated in the regulations. Again, this is one of the things that banking regulators look at closely when examining companies like this.

Is it a good thing that Bill.com did this, from their customers' perspective? Probably not. To the extent that their customers' might have earned interest on these funds had they been deposited into their bank accounts sooner, Bill.com is depriving their customers of interest income. As the company's email admits, customers should have been informed of this change well in advance of when it was to occur, to be given the chance to switch providers if they didn't like the new terms.

That being said, no one here is stealing anybody's money, and most likely no laws are being broken (unless they broke the law by delaying notification).

> It's a good thing, not a bad thing, that they have a separate line item on their balance sheet for funds held for customers.

That is not what Animats was saying. They were talking about that showing up on a balance sheet at all, not whether it is separate vs combined with something else.

If they are holding onto customer funds, then you definitely want it to show up on the balance sheet.

Are you saying they shouldn't be holding onto customer funds at all? If you disagree with their doing this on a moral or ethical level, then that is your prerogative, but they don't seem to be doing anything unusual or untoward.

> Are you saying they shouldn't be holding onto customer funds at all?

No. I pointed out that you assumed Animats said something that they in fact didn't.

I have no opinion on what Bill.com should or should not be doing.

That's possible. Bill.com is licensed as a money transmitter in California.[1] The funds are supposed to be in a trust account, with Bill.com acting as a fiduciary. It's important to be sure that's actually the case. This really matters if Bill.com goes bankrupt. If the funds are in a trust account, you get them back, reasonably quickly. Otherwise...

But see [2], regarding the "Agent of a payee exception to California money transmitter law". "The question of whether the agent-of-a-payee exemption applies is of considerable importance for any platform involved in facilitating payments ─ including consumer marketplace platforms, billing services, payment facilitators and other payment processors, and business-to-business (B2B) payments platforms." Money transmitters are regulated primarily for consumer protection purposes. Businesses are expected to take measures to protect themselves.

Large customers of Bill.com really need to nail down exactly who owns that money.

[1] https://dfpi.ca.gov/2018/06/05/bill-com/

[2] https://www.jdsupra.com/legalnews/alert-california-finalizes...

> Bill.com is licensed as a money transmitter in California.

Also in nearly every other state:

https://www.bill.com/legal/licenses

It is not only California law that matters here.

> The funds are supposed to be in a trust account, with Bill.com acting as a fiduciary. It's important to be sure that's actually the case. This really matters if Bill.com goes bankrupt. If the funds are in a trust account, you get them back, reasonably quickly. Otherwise...

I'm not sure that the money needs to be held in a segregated "trust account" as such for it to be considered "money held in trust", if the money transmitter law explicitly specifies that the customer funds are funds held in trust.

> Money transmitters are regulated primarily for consumer protection purposes. Businesses are expected to take measures to protect themselves. Large customers of Bill.com really need to nail down exactly who owns that money.

This is really getting into the weeds with regards to how a bankruptcy court would handle a case like this, if Bill.com were ever to go bankrupt. I will agree with you that it does seem like an interesting question: If Bill.com is acting as an agent-of-a-payee on behalf of one of its customers, and is therefore somehow exempted from CA money transmitter law for purposes of licensing and regulation vis-a-vis that particular customer, does that also mean that such a customer's funds should not be considered "funds held in trust" for purposes of bankruptcy?

I very much doubt that any court will ever get the chance to rule on this question, however, because Bill.com is licensed as a money transmitter and doesn't seem to be attempting to avail itself of the agent-of-a-payee exemption. It would have to be a creditor of Bill.com arguing to the court that in spite of Bill.com's status as a money transmitter, particular customers' accounts should be exempted from money transmitter laws, and that those particular customers should be treated as ordinary unsecured creditors. It would be such a travesty of justice for that to happen, I cannot imagine that any judge would agree to such a thing. Besides, the DFI would shut Bill.com down before they ever got close to bankruptcy, and there really is no reason to think that Bill.com will ever go bankrupt.

This is really getting into the weeds with regards to how a bankruptcy court would handle a case like this.

Agreed. Still, one of the early posters here mentioned having an amount in high six figures in a Bill.com account. At that level, you want such issues nailed down.

There really is no reason to think that Bill.com will ever go bankrupt.

Their financial statements indicate they're operating as a "buy growth or die" startup, even after going public. They spend a huge amount on marketing. Marketing is more than twice cost of sales. They still lose huge amounts of money. They're taking on debt. Sometimes that works, as it did for Amazon. Sometimes it doesn't. Some analysts are worried.[1]

[1] https://seekingalpha.com/article/4484590-billcom-bill-stock-...

Disclaimer: I'm the founder of Checkbook.io ( a payments platform with a single API for sending payments)

There are 2 parts to any payment, the sender side and the receiver side. Bill.com has historically pulled all the funds from the sender's bank account and held them in a custodial bank account controlled by Bill.com to pay out the recipients

They have earned float on this amount and given they are a public company you can see from the historical statements what percentage of their earnings are from carrying such float. (It depends on the interest rate and given the rates have been low recently it was about 10%-20% historically, may increase or decrease)

They have decided to do the same on the receiver side now i.e. instead of disbursing funds to the recipient they will simply hold them until the recipient manually collects them. This is somewhat unprecedented in the payments world - I don't know of any other Business payments processor doing it. It's basically a paypal type wallet being foisted on the recipient without an opt-in

In so far as "Are they allowed to do so" ? Bill.com is registered as a Money Transmitter (not a bank ) so in partnership with their bank they can do this. From the principles of ...let's say "generally acceptable payment processing rules" this is bad, particularly since it's an opt-in

There are multiple other alternative payment processors available, including the company I work for

I wonder what would happen if you asked them if this means that your funds no longer have FDIC protection? As is required of bank accounts? They've therefore elected to take an extra risk with your money without your knowledge?

This seems illegal to me.

Never used them, but from your description sounds either like (a) they are in trouble and trying to profit somehow off funds (by way of interest? I don't know) or (b) they are raising money (from private investors or IPO), and need an accounting change that would allow them to list customer funds as "revenue", which they might be able to under the new scheme in some way, and likely weren't able to in the old scheme.

Bill.com IPOed a while back, in December, 2019. However, they seem to have needed more funding after that, and took on a pile of debt:

> Subsequent to its IPO in December 2019, Bill.com completed three rounds of financing. The company closed an equity follow-on in June 2020, raising net proceeds of $308 million, a convertible debt offering in December 2020, raising net proceeds of $1.1 billion. In September 2021, Bill.com raised $1.9 billion in net proceeds through a concurrent offering of equity and convertible notes.[1]

Looks like a lot of this went towards two big acquisitions in 2021.[2]

[1] https://en.wikipedia.org/wiki/Bill.com#Funding

[2] https://en.wikipedia.org/wiki/Bill.com#Milestones

Sounds like the same thing payment apps do, instead of sending you the money they hold it in a virtual balance. Eg Venmo, PayPal.

Since businesses use this service I assume the balance are an order of magnitude larger and potentially used in some interest or float mechanism.

This hasn't happened to me yet but I have noticed they have been pushing their "give us 10% and you'll get your money sooner" service in an almost dark patterny way. And there's been some weirdness with sending invoices for the last several months. So, agreed that they might be in trouble.

This sounds like a desperate move by a failing company. Migrate now before they decide to limbo some later payments for reasons.

Bill.com may be in trouble, quietly remove your funds before the word spreads

Don't tell anyone, pass it on.

You can be loud about it: the majority of people won't hear you, and the majority of people who do hear you, won't care.

I’d find out where they’re incorporated and contact the state Attorney General’s office.

There's certainly no excuse for them not announcing this change, no debate about that.

However, the payout schedule between Bill.com as the payment processor (an agent of the OP) and OP. Payment processors can and do hold funds for various reasons, and customers never should have been sent a late notice without someone actually checking the payment records themselves on Bill.com to see if payment was made.

No mention of defaults, but some of the other articles in their Help Center describe it as in the process of rolling out: https://help.bill.com/hc/en-us/articles/4409933681677#can-i-...

Don't they legally have to be a bank to do that? With FDIC insurance, etc, etc.

I am bill.com customer and don't this email or any such changes to my account

Not a fan of bill.com either. What’s a good alternative?

Routable is my go-to.

Thx - for anyone who wants to chat >> omri [at] routable

Check out https://ramp.com/bill-pay

Ugh this is shitty. If you'd like happy to help you find a new home - I'm a co-founder of routable.com

April fools! Ha, they really got you didn't they?

I had to check the date :|

how can this be legal?

This looks like it was badly thought out. Funds in transit from buyer to the Bill.com account should be in an escrow account. Most escrow accounts are not placed where they gather interest as the time in escrow is small and rates are low. If interest is gathered = not Bill.com's as it is not on their $$. These accounts are usually run by banks who pay no interest but the $$ enters their churn and earns the bank interest - banks run these escrow accounts as a quid pro quo for the interest. It is possible that bill.com wants to do this on the same terms as arm's length banks do it - also keeping the interest. On a machine system this movement and tracking of who owns what is far cheaper than in the days of green eye shaded account managers with adding machines = a possible substantial aggregation without much costs as their system already does the lion's share of these transactions? Nothing wrong, these small increments are not significant to each account(some are larger though?) and as long as retention on the way to the client is small = the aggregate is also small, but being an aggregate could be valuable in aggregate and earn a little for Bill.com. If all that was clear, most would let it go as Bill.com's service is useful and economical and it usually a lot cheaper than the traditional thieves. So Bill.com - Truth up, we like you any way even if you earn a few bice on this float!