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Comment by jonjbar | Hacker News Reader

+1 Exactly what we are experiencing ourselves but we made the mistake to wait till the beginning of October to switch: even if we didn't like the payment term changes, we had no reasons to suspect that we wouldn't receive any moneys at the end of September / beginning of October. They now owe us tens of thousands of dollars. And with the massive exodus, I do not have high hopes to get any of that money at all. We've been with this company since 2001 (previously called Element5 / Share-It!) without any problems. I can't understand or imagine what could have made them believe like this: as of today, they are still processing payments from end users! Hopefully, raising awareness on this issue will give us at least answers...

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It's speculated on that audio forum that they took a big hit when Kaspersky sales were banned in the USA, as this was their perhaps biggest customer. Who would thought that such thing would affect many other vendors not related in any way to Kaspersky?

Still, their cut is around 5-10%, depending on how much they dip on the exchange rate. That means they hoarded 10-20x of their usual profits for July, August and September from all the other vendors. I sure hope that they didn't spent all that or moved it to a parent company. But the fact that we're not hearing any official statements suggests otherwise.

There's no money to hoard. It doesn't really work like that.

Companies like this are usually run as a barely sustainable ponzi scheme. Any money they might have had is long gone. They're paying your September revenue with money from their October sales, and they plan to pay your October revenue with money from their November sales.

Then suddenly their sales take a big hit, perhaps because a big merchant left, or perhaps because of a general economic downturn. They still need to pay out their other merchants' October revenue, but their November sales are not enough to cover it. What happens is that they announce that from now on, payment terms will be net 60 instead of 15 or 30. This is the first big red flag. The plan is to wait for December sales. Maybe that will solve the problem in the short term. Maybe it won't, and if it doesn't, by January everyone is in deep shit.

That's one big and very expensive lesson. If you're using distributor/reseller/payment processor, you're in fact their creditor, with all the risks it takes. I never thought of myself as a creditor until this happened.

Isn't this illegal as fuck?

When they take 100$ in revenue, 10$ of that is their money, 90$ is your money (even though they handle it), which they can't legally touch, no? Or is that only for regulated industries?

Yes, very illegal. But that doesn't stop people from making the dumb decision to do it.

They are apparently set up as a retailer, not just a payment processor. So those banking type rules about customer funds wouldn't apply. They are like a digital Walmart--buying and paying you for the wholesale product and then selling it to the customer and taking their money are two separate transactions.

In a way you're right, but we should also take their payment schedule into account. They used to pay 15 days after the end of the month.

That means they were at most taking a half of future month for "ponzi buffer". Couldn't be more than that, if we assume they were not accruing debt. Which they most probably did, but for the sake of high-level analysis we could assume they were at zero.

They're now all of a sudden sitting on a July, August, and in most cases good piece of September sales. They basically went from 15 days of "extra ponzi buffer" to 45 day. If we include July, which they also didn't pay - they're now sitting on 75 day of revenue. That's quite the extra money compared with extra buffer they were operating with until recently, depending on how we look - 5 times more.

We should also take into account that MyCommerce margin is between 5 and 10%, depending on order size and how much of currency exchange they take. So their operating expenses should be around that. Even if they lost some big clients and let's say lost half of the sales, their expenses should went from 10% to a 20% of a single month. But they're sitting on full 2.5 months of now, 25 times more than their typical expenses.

Something is way off, that can't be explained with gradual slip into ponzi scheme.

One explanation was that Kaspersky was so big for them, it made 90% of sales. When they left the platform, their operating expenses went from 10% to 100% (using napkin math, we're only guessing anyway).

However, since they had a huge layoff in July I assume they're adjusting their expenses to the loss of such a big client. Layoff in US was without severance, based on reports. Since they continued collecting money from other vendors, and not paying them, and considering that they accumulated multiple months of full revenue compared to the usual 5-10% of a single month they should still have MUCH more money at hand.

It's very likely that they're transferring that money to another entity. Perhaps paying off a big creditor, which might be legal, but they intentionally picked to pay off one single creditor with big legal team instead of hundreds (thousands?) small defenseless vendors. And they lied to these small vendors to make them stay a bit more and siphon some more money for that other party.

In essence, they told us to stay with them and bring them more sales which at that point they were already planning to send to another party. This very much looks like a fraud and theft.

Kaspersky could very well be their big creditor, if it really made up such a huge percentage of their sales.

Assume, for illustration purposes, that they had a monthly revenue of $10M, of which $7M was Kaspersky sales.

15 days after their last month with Kaspersky, they need to pay Kaspersky $7M (minus fees), as well as $3M (minus fees) to their other merchants. But now they're only making $3M a month. Whatever payment schedule they can get Kaspersky to agree to, they still don't have enough money left to pay their other merchants.

Of course every company should save up for a rainy day, especially if they are exposed to this kind of risk. Unfortunately, many companies don't, either out of incompetence or out of malice -- which tend to become indistinguishable at these scales.

Maybe we should tell all of our customers from July to until we switched, to do refund and to switch to new providers? Will that help?

We are in the exact same boat. We've been with them since 2002 (when it was still SWReg). We should have switched back in August when they changed the agreement and postponed payment till 60 days. It sounded 'legit' but it should have been a red flag. Yesterday we made the final changes to migrate over to PayProGlobal, and had our first order processed this morning. We have no illusions we'll ever get the money DR/MyCommerce owes us. It all sucks, tho in hindsight we were too naive and trusted them too much. Never again.

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