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Comment by f1shy | Hacker News Reader

I must be stupid... but how a refunding of 150k makes a loss of 250k? I would assume the shipped goods are less than 150k (gain margin). That plus shipping is the loss. Shipping, assuming 150, you sold about 1000 items, which at 5EUR typical shipping ist 5k. Worst case, even with interest and all that you want... who do you come to 250k?

I do not want to defend Stripe (I hate all that kind of companies), but there are so many unclear details here. - What were those unauthorised charges? - What are exactly the goods you sell? - What is the time spread across those transactions were done? Is that one business day? a month? quarter?

I really cannot conclude stripe is shitty based on this post.

If everything is so clear and arbitrary like it seems in the post, is a no brainer to get 500k back in a court of law. So, relax.

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We've sent out products to all the customers that have paid.

Stripe is now "considering" refunding all these customers, while holding 150k of our generated revenue.

Due to the products being bought and shipped, (and not even factoring in marketing costs) this easily equates to a total net loss of 250k for our business.

That's not how you count a loss. Your loss is the product you bought (not sold) and the time and effort spent on sending it, as well as possible marketing expense to get it sold. You don't recognize the revenue until the money is in the bank, especially not if you have a dispute with your payment service provider otherwise you are creating yet another problem for yourself, the taxman will want his due even though you did not receive the money. So stop recognizing this as revenue until you have been paid.

They were paid, Stripe has just frozen the funds and apparently intends to refund the lot.

No, Stripe was paid. Really, the basics here are pretty simple: until your IPSP has released the funds to you you have not been paid. The fact that Stripe intends to refund is a pretty strong bit of evidence that the company has not been paid yet.

One thing that people that use services like Stripe really ought to do is to make sure they understand exactly what the position is that they maneuver themselves into, it looks like a lot of this is driven by wishful thinking rather than understanding.

Legally speaking Stripe has the option to refund a customer during the hold-back period at their discretion. Technically you are not supposed to send any physical goods until you have received the payment. If you do so that is at your own risk.

If Stripe, or any payment processor was "paid" you would have to invoice them for tax purposes not the end user; and they will have to invoice and the end user and deal with Value Added and other taxes.

You should google the term 'merchant of record'. In this case Stripe is the merchant of record. If you bring your own merchant account then you are the merchant of record. In the first case it is Stripe that gets paid, in the second case it is you that gets paid. Either way, in this case the transactions will be reversed so it looks like soon nobody will have been paid. Stripe reduces your liability by acting as the merchant of record but the fact that that liability shifts to them gives them certain rights - and obligations - with respect to the funds, and a unilateral refund is part of those rights.

The moral of the story: do not enter into an agreement without understanding the terms and the practical implications of those terms when applied to you and the relationship with your customer as well as the transactions themselves if you don't want to be surprised by some of the potential outcomes.

And Stripe isn't a Merchant of Record. They even have a specific product to overcome this, Stripe Tax.

According to all of the information the OP has given they are in this case. If you have evidence to the contrary I'm all open to it but it does not apply here unless you have information that contradicts the OP in a believable way.

Also: note that Stripe has all kinds of technical countermeasures in place to detect money laundering and other terms violations and it may well be that everything looks totally above board to an outsider whereas they have valid reasons to deny a party service.

The evidence in the services that Stripe provide, they do not handle taxes for you. They act as a payment gateway provider with some software add-ons.

Yes, so? That doens't mean that Stripe isn't the merchant of record. All that matters is whose name shows up on the credit card statement. If that's Stripe - as it usually is because it is their merchant account - then that's Stripe. Bring your own merchant account and it will be your name that shows up. Stripe can be IPSP and PGP depending on the circumstances and the story the OP told here strongly indicates that they are using Stripe as an IPSP.

The difference between a payment service provider and a payment gateway is substantial, in the first case you likely won't ever see the customers card details other than what is required for shipping, in the second you will have all of the data including CVV and expiry and you will have to deal with the associated overhead.

Yeah I was also confused at that calculation, if there’s any loss here it’s just the material loss of the products that have been shipped but will never be paid for. I cannot see how the loss could be almost twice the sale value.

Agree that I have no idea how this person is calculating their loss at 100k over their revenue. However, generally as in GAAP, you would recognize revenue on shipment or when a service is rendered because that would be the period in which the revenue was accrued. For example, most companies that sell on terms like NET 30 will invoice AND recognize revenue on shipment; they would not wait until payment is received on the invoice. That is why there are [contra asset]/expense accounts relating to bad debt.

Waiting until funds hit your bank account is cash basis accounting and even in that case, I am not sure how having a third party like Stripe holding the money affects things.

Yes, you can do this. But in the case of the OP recognizing the revenue prior to receiving the payment makes them liable for the taxes on that revenue and that probably isn't a very clever thing to do.

If you're accrual basis like most companies _in the U.S._, you would be obligated to do this and not recognizing would be a finding on an audit. If not, at the end of the year, companies could ship goods out reducing assets, book the corresponding cost of goods sold, and not recognize revenue until the following year.

Let's say you had $100k in the bank before you started this.

You buy the product and ship it, costing you $75k. Your balance is now at $25k.

You expect revenue of $150k from customers. This would take your balance to $175k with net profit of $75k.

But Stripe refunds the customers, and the revenue never comes. Your net loss (excluding labor, marketing etc.) is now either $75k (the money that is no longer in your account) or $150k (expected balance vs. the actual balance).

It doesn't make sense to take the sum of those two. Your expectation was that the incoming revenue would cover the procurement and shipping.

Even that isn't right: if the original balance was $100k the loss can never be larger than that. You still have 25K in the bank so the loss is $75k, any other interpretation should not be labelled a loss, at best they are misguided expectations.

The 150k is a "loss" in the same way that the movie industry "lost" $500 million (or whatever it is that they claimed) to piracy: revenue that they think they should have gotten, but didn't.

Precisely.

I agree it's up to interpretation, but in this scenario, the seller has shipped a set number of goods that the customers have paid for. The revenue has been generated but not moved successfully through a service provider to the final destination.

So it's not just an estimate. The money is not imaginary, it has already been collected from the customers.

It actually got refunded (see title, and update by OP).

> Due to the products being bought and shipped, (and not even factoring in marketing costs) this easily equates to a total net loss of 250k for our business.

This is double counting, and not how you calculate net loss.

You can't take both a negative and a positive cash outflow, then make them both positive and add them together.

One reason Stripe may stop doing business with a party is if they do not believe that party is going to be around long enough to honor their warranty risks because Stripe is the merchant of record on these transactions. The inability of the OP to get basic bookkeeping terminology right would be an excellent reason to cease doing business with them, both as an IPSP as well as a potential customer.

Companies magically going out of business after getting their money is one of the reasons these hold backs exist in the first place.

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