Ask HN: How do your enterprise customers pay you?
If you are a SaaS company, how do your customers pay you? Credit, ACH, etc, monthly vs. annual contract. Any good resources on the subject?
The last one was 9 months late in paying. Enterprise life, yay.
Salient point to keep in mind: the people responsible for everything that happened in that workflow after my customer passed the quote to her purchasing department are a) not my customer, b) not even on the same campus as my customer, and c) just. don't. care. A six figure check is just another piece of paper to them, which they'll see several hundred of this week.
As near as I can tell, this is just priced into everyone's expectations.
> For example, a big company happily using the $250 a month plan could, quite possibly, be happy to upgrade to a $5,000 a month contract if you offered them the right incentive. (Twenty times as much, you ask? No, transitioning from "pocket lint" to pennies. Stop thinking like a human. Think like a corporation. Corporations are like humans whose smallest increment of currency is the largest paycheck you've ever received.)
> This is important: Enterprise pricing is discontinuous with normal pricing. If the $250 a month plan entitles you to 500 foozles and an Enterprise needs 5,000 foozles, that costs thousands or tens thousands of dollars per month. If an Enterprise only needs 500 foozles, that costs thousands or tens of thousands of dollars per month. If an Enterprise only needs 50 foozles, that costs thousands or tens of thousands of dollars per month. This is partially justified by the amount of pain you're signing up for by doing an Enterprise sales process, but is mostly just pure, naked price discrimination. Enterprises are not price conscious. Don't attempt to sell them based on your price. ( For prices customarily contemplated by software companies.)
I know in my industry (pharma) we offer "prompt pay" discounts to our customers. 2% 30 net 60 for example (payment due in 60 days, get 2% off is paid in 30).
Of course a huge corporate has a lot more leverage with regards to terms than a small contractor.
if you offer a 2% discount on a 500$ service for paying in < 30 days, then you could give 10$ credit on the next bill
Obviously this depends on local regulations. For example, in Belgium the rule is that the basis for VAT does not include the 'prompt payment discount'. E.g.: invoice is 100, 2% 10 net 30. How much is the VAT @ 21%? It's 0.21 * 98, so your invoice can say 'total payable before xx/xx/xxxx: 98 + 0.21 * 98, after that: 100 + 0.21 * 98.
I had a long, drawn-out argument with a supplier once whose very accounting manager didn't understand this concept. They would have me pay VAT on the 100, because otherwise, according to them, they'd be giving me 'a discount on the VAT' (that sentence doesn't make any sense whatsoever). So I called the tax office, PLUS an accountant, to confirm the right way for them to bill me, and they still didn't believe me (or rather - didn't understand me). So just to shut me up, they said 'we'll give you another 2% discount' facepalm
Tangential to the discussion above, I guess, just venting ;)
Related, how many days you have to wait to get paid after you've spent money supplying the thing is called the cash conversion cycle. For a business selling to enterprises, maybe it's 90 days from doing work or building a widget and shipping it until they get paid. Dell back in the day would charge your credit card as soon as you bought a computer, and then only pay its supplier some time later, so that they had a negative number of days, I think around -5; in effect, their suppliers were loaning them money.
[0] http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average [1] http://ycharts.com/glossary/terms/cash_conversion_cycle
If you add a "late fee", it's a no go. But if you get an "early payment credit that will appear on your next invoice", it is ok.
Don't know if this is still the case, but for a long time, merchants couldn't add a "credit card fee" (even though they pay it at 2-3%). However, they could give a "cash discount".
Mathematically (and financially) equivalent. Yet somehow different.
We ended up raising prices something like 30% and offering discount terms like 15 day 30% discount.
They never once paid on time for the discount, although we would sometimes get paid in 30 days at the higher rate. (Typical pay rates at the time were Net-180 to Net-270).
So, price it up, and show it as a discount. A good customer inside an enterprise should be sympathetic; if you're good, you can turn it into you and your customer against the customer's payables department. You can say "tell me the real story on payables", and "I have to get paid faster than that or I need more cash than we talked about" to many of them.
I have a customer (my only semi-regular customer, sadly) that pays like clockwork. Seriously, I've learned that I can go to the mailbox 32 days after I sent an invoice and their check will be there. I hope it lasts!
I've had 45/75 and once 90 day terms forced down my throat. That being said a lot of my clients who have really long payment cycles can be very flexible with us on billing milestones (like 50%+ up front - heck we've had 90% "down" in decembers).
These days all my invoices are done electronically and I have to be honest at least for us we don't often get bills more than a day or two late. I have however learned when we were smaller that generally if something was more than 4-5 days late something was off on the invoice being processed. I stopped giving folks leeway more than about 3 days before I started hounding folks. YMMV.
I encourage everyone to write into their terms what will happen if payments are late. It would be insane not to.
Also, it is a jerkwad thing to do (for some definitions of the term) to right in a destroy clause into your terms (e.g. "When you stop paying maintenance on this software, you must stop using it.") but it really does lock in large enterprises who frequently don't even remember the name of the guy who set the thing up in the first place, and can't imagine committing current resources to figure out how to stop using it.
I feel like I sound either really bitter about my job or that I'm a really awesome enterprise IT manager. :D I'm not sure which is closer to the truth.
Of course, it's easier not to care but you can make it a negotiating item (if that's part of your sales process).
We start our Net-X countdown clock at the very last moment, and typically that is when we start receiving the service (not when we agree to a deal). This seriously irks most vendors, but they seem to have been beaten down and conditioned over such a period as to just deal with it. Ultimately, the goal of an enterprise (or any business) is to have revenue that exceeds expenses, and a super simple way to maximize this on a periodic scale is to ensure your AR period is shorter than your AP period. Iirc, we're currently standardized on Net-45 for receivables, down to Net-30 whenever possible, and start negotiations with Net-90 for AP, usually getting down to Net-60. That extra 15-30 days makes a huge difference sometimes in positive cash flow. I don't endorse the behavior but it is what it is. Another "trick" to save money is to negotiate an annual contract into quarterly (or other periodic) payments. For one $1.5m/yr contract, for example, that saved us something like $200k/yr.
We pay by ACH whenever possible (it is cheaper and easier for us, by far, than writing checks), and part of our vendor qualification process includes getting bank details. We do write thousands and thousands of checks, though. :)
As long as money is flowing and there is no obvious abuse, no one really complains an regulators don't get involved. The wheels of commerce and all that.
Perhaps more apropos is the answer to a different version of your question, regarding a different EU directive: EU 95/46/ec (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:...). This directive covers data protection and proscribes quite a few things that make licensing or operating SAAS services challenging in the EU. Some enterprises take the tack that "well, Safe Harbor covers us." and do whatever they want. Others are ultra-conservative and refuse to use SAAS services that aren't explicitly compliant with 95/46/EC. And, since it's a directive and not actually a law in any country (except perhaps maybe slightly Sweden... which is also quite a bizarre situation, having a FB data center there and all), it's clear as mud how it would actually be enforced, or what enforcement would look like.
To close, I will tell you that The Street looks very closely at the payables/receivables numbers & ratio, just like they care about inventory turns and other supply chain metrics. It's a big, and bad, deal when a large enterprise doesn't pay more slowly than they receive payment (in aggregate).
I could tell a lot of stories but that would be ... career limiting.
What? EU Directives are requirements on member states to bring in laws. That data protection directive has been implemented into national law in every EU member state…
> (except perhaps maybe slightly Sweden... which is also quite a bizarre situation, having a FB data center there and all)
Pretty sure Facebook is (legally) based on Ireland, and under Irish Data Procection law (which is the implementation of the EU DPD in Ireland).
Example; one day 1 you provide a service to enterprise customer (the clock starts ticking), on day 2 they resell that service (with added value etc). The enterprise customer's customers either pay upfront (B2C), day 5 through 9 for customers paying by credit card, bank transfer etc, or pay on day 32 (B2B). Then on day 60 they pay you. So in the case of B2C your enterprise customer has cash in the bank earning interest for between 51 to 60 days, and for B2B customers for 28 days. So they always have a positive bank balance (no need for a rolling line of credit and risks involved), and they earn some extra cash because of it.
EDIT: further technical info.
The technical accounting term for this is positive cash flow. The opposite (paying you providers before getting paid by your customers) is obviously negative cash flow (like a old fashioned mom and pop shop; they buy the stock before their customers pay for it. Please note that modern supermarkets work nothing like this).
Ultimately, they want to get more free loans from their suppliers than they give to their customers
I understand the importance of "cash flow", but the real goal seemed to be shaving every nickel to maximize profitability on the deal.
Yep. Also, small companies dealing with MegaCorps - please, just accept our terms & conditions. Raise the price by 20% if you have to compensate for whatever rights you feel our standard T&C doesn't give you, I don't really care. But if you want your own terms, then your lawyers need to talk to our lawyers and there is a 50% chance that your PO will arrive after man lands on Mars.
Examples in the UK: https://marketinvoice.com/ http://www.platformblack.com/ or even http://granttree.co.uk itself (though we don't advertise this at the moment - our power-up fund does extend to invoice factoring for startups with no trading history).
It's shocking how many big companies will send me book-length MSAs, T&Cs, etc and expect me to just sign it. A lot of them have some scary-sounding clauses in them.
It seems especially weird for a buyer of a SaaS product to have their own T&Cs.
Recently I was asked to sign a 30 page T&C doc from a potential customer - and I just said no. To my surprise, they said "ok no problem, we'll just use yours".
I tried this again with 2 other customers, and so far it's worked 2 out of 3 times. On the one that didn't, I'm still kind of in limbo - waiting for a PO nearly a month later... Based on your comment, it sounds like I'll be waiting a while :\
That's how it's always been, because before computers, it typically took 7-10 days to process through company procedures and banks.
And the cash flow cycle / rate of return is laughable in today's ZIRP environment. Especially if you are bigcorp, you can pay at Net+0 and take a loan at ~0% (+/- 0.1%) yearly, which translates to ~0.02% over 2 months, if you so wanted -- and no one would notice.
When I did contracting, I would happily give a 5% discount to get Net+0 -- in fact, a couple of times I raised my rate 10% a-priori and offered a 10% discount if they paid Net+0 instead of Net+30 (the latest I was willing to accept). None eventually accepted; One tried to get it through their bean counters and couldn't - the Net+X for X>30 is so deeply ingrained into most accounting departments that it can be considered an axiom, regardless of how little financial sense it might make in a given case.
This one really makes me laugh. Can I use the same excuse when I am late in delivering your order?
In college I was part of a junior enterprise (basically an outsourcing firm for students), and we figured out really quickly that the due date was the pay date after consistently applying late fee logic. Saved us a lot of back-and-forth.
1) Flat out refuse to agree to late fees. They get removed from the deal or the whole thing is off.
2) Simply pay the original amount and ignore whatever late fees you have added on. Don't like it? "Speak to accounts", "we don't have a process for that", "these fees aren't on the paperwork that I have here", "speak to your point of contact", "I don't know anything about that", repeat.
It all comes down to who needs who more. A large company has a mountain of suppliers to choose from and they are often fairly easy to replace. They have potential suppliers trying to get in the door all day long so if you don't like it you can show yourself out. Meanwhile a small supplier only has a relatively small set of large customers they could possibly do business with and they are very hard to get.
That is laughable. The only thing it gets you is ignored. The most aggressive late fee I've ever seen agreed to in any contract is 1.5%/mo starting on day 121 (original was 2%/mo on day 31). Any company I've worked for that has had more than $100MM or so in revenue has simply refused to sign any contract with any sort of late payment penalty, but they would sign 2/10 net 30 contracts all day long. Some companies even require that their accounting department follow any terms for a discount.
Perhaps unexpectedly, I did 2% 10 Net 30 for gov't, and I was almost always paid on time.
You mentioned six-figures - it can be low, mid or high six.. So does anybody thinks about this there? :)
An other distinction is, that you might charge accounts of normal customers, but you always just send an invoice to an enterprise customer, and they send you the money. German customers could use the old BLZ routing, European the IBAN routing, and US will use ACH. But I don't care, as long as I get my money on my account. Big companies are slow payers. My trick of getting the money fast is to offer 2% discount, if they pay within 7 days.
Great tactic. The reason this works, in some cases, is NOT because the company cares about a measly 2% of whatever they're paying, but because they may have a policy that says they _must_ accept discounts if available.
The shorthand means X% discount if paid in Y days, with full amount due in 30.
The greatest feature of SaaS has been the ability to take a 50k software package and make it a 500/month subscription that people who actually need it did not have to go through the official procurement process and could simply expense it.
From the orgs where I worked, $500 to $1000 per month seemed to be the usual limit for expense items, depending by company size and the position of the person expensing it. CTOs typically can get away with a lot more...
Although, legal review is always a good idea to make sure you understand what you are agreeing to.
I've seen that sentence several times in different contexts. Is it in current US usage?
To start to answer, do annual deals whenever possible. Large companies want to pay once a year via ACH/check/wire rather than dealing with credit card payments and expensing, etc. Often times credit card payments are prohibited (though that rule is often ignored). Money up front is key for the business.
Invariably we have to spend a lot of time sending emails chasing late payments, and sometimes making phone calls. They always eventually pay, but it always takes a ridiculous amount of energy to get to that point.
Oh, and US customers (we are based in the UK) most often still pay by cheque (or 'check', if you are American :), which take weeks to clear and usually involve high processing fees. On the occasions where US customers pay by bank/wire transfer, they sometimes do so while specifying that we also pay their side of the transaction fees. Bad practice, and very irritating :/
Cheques are practically non-existent in Europe. SEPA all the way.
To send money, you log in, paste the number and amount, and hit the send button. If both parties use the same bank, the transfer is immediate, otherwise, it happens at 10pm that night.
There are no "~$25 Wire fees" or delays or other nonsense, which makes tiny bank transactions possible, like here's $1.25 for a cookie, as well as paying rent a breeze. Just like it should be.
When I came back to the US and had to write a paper check again (that wouldn't clear for a week) I was quite disgusted.
To send me money, someone writes numbers on a piece of paper. That piece of paper is physically transported hundreds/thousands of miles to me. Then I have to write on the piece of paper. Then I take a picture of the piece of paper and upload it, where someone reads the numbers written on the piece of paper, and actually transfers the money. Is this really how the world works in 2015???
(That's a rhetorical question - but feel free to answer it if you feel so inclined.)
In terms of payment, it really depends on the company and size of deal. For some companies you can send an invoice and they'll send you a check back quickly, but the larger enterprises usually will need you to fill out a PO, you'll certainly go through procurement, and then you'll be able to invoice. I've typically seen Net 30 days for payment due date, but some companies may push back to Net60.
Credit Card usually only works for smaller transactions (<$10k) or monthly recurring charges.
For me, dollar amount matters. Is your service $100/month? It can go on a credit card and get expensed; Legal might take a quick look at your online standard terms and conditions and privacy policy (which must exist if you want to sell to enterprises) but not likely to argue anything.
Is your service $5,000/month? Then I need a contract that is approved by the lawyers and signed and dated by human beings, and an invoice that Finance can validate against the contract for audit control, and then they will send you a check. Because all that is a pain in the butt, I prefer to do the whole thing only once per year on an annual renewal.
Is your service $20,000/month? All the same legal stuff above, but now I might prefer monthly or quarterly invoices for cash flow reasons. But I'm guessing since you're asking here that your SaaS business is probably is not charging $20,000/month. :-)
Mind you, my largest customers are paying a few thousand dollars a month, so I'm sure they're avoiding paperwork compared to the million-dollar-purchase-order payments.
In Germany for example by the far the most common method for business payments is invoice / bank transfer. Up to a certain amount (about €500) credit card payments are accepted, too though (because that's what middle managers in larger companies commonly are allowed to spend on their own account without asking for permission).
In the US paying with credit card is much more common even for business.
Then again, enterprise pricing can easily exceed the usual credit card limits.
Larger companies like to pay annually, smaller ones especially startups are more likely to pay monthly for obvious reasons.
If it's small recurring billing, just have them use a credit card. Even then, annual billing is preferred - it cuts down on the requests for invoices from their accounting departments in addition to the obvious cash flow advantages of collecting a year up front.
Some pay monthly, some pay the full contract upfront. We offer a discount for those that pay upfront so it's the customer's choice.
Most of our customers pay within 15-30 days. Our invoice says Net15 but some customers insist on different terms. It's just another negotiation point for us. Often the company policy is something like Net60 and the people we are talking to can't change that.
Whatever the terms end up being, some customers are really good about sticking to them, and some aren't. Sometimes a customer doesn't pay for 2-3 months and then we get a deposit for all those payments lumped up at once.
In almost all cases, the people making the payments have no relation to the people who bought your product. They most likely don't even know them or even work in the same state (or country). The bigger the company the more likely this is.
Once you've worked with a particular customer for a while you at least have a good idea of how they pay.
If the customer wants different terms, we stick GE-Capital between us to deal with the impedance-mismatch.
Outside the US, similar structure (not ACH, of course), and usually with either DB or HSBC there to work out any mutual trade-finance/payment-timing issues standing between us.
Sticking a bank in-between works well on a number of fronts, and one is that the client doesn't owe you -- they owe the bank. It's not free, but saves a lot of hassle for international deals. Even domestic.
Sometimes a dev from a large company will test us on a smaller package with a company credit card and expand from there after we push them through the sales funnel.
Most of our enterprise clients pay using either ACH or check, while the remaining typically use credit cards.
They pay me in CASH inside a cool envelope.
And it feels great seeing real cash, the volume and smell.
Fee's to the merchant will be less < 1%.... The key is finding a processor who will take on that risk
For context, we're early stage with a handful of initial customers, mostly small companies. Deal sizes in the five figures per year.
Worked at a startup that served only fortune 1000 companies. Always late, late, late, late.....
Good side: Repeat customers. Getting in the door is hard but once you're in it is easy to stay in if you're doing a decent job.
Bad side: After 6 months of doing business with them you would finally get your first check. For a startup even with millions of dollars in the bank this sets your burn rate on FIRE.
what if you are a sole proprietor? do I start incorporating and setting up a business bank account now before they ask for the details?
You don't need to incorporate to create a business account, but you have to register your fictitious name locally. Costs about $40 at various places around town and they handle all the paperwork and announcement in a newspaper.
For taxes, you just keep all receipts and file a Schedule C. When depreciating equipment, you need to know the day it was bought.
Also, check if your city requires city taxes. Some do, some don't.
Please wake up from your wet dream.