Ask HN: How do your enterprise customers pay you?

https://news.ycombinator.com/item?id=9075768

by zackliscio • 11 years ago

184 117 11 years ago

news.ycombinator.com

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?

lanstein• 11 years ago

As always, I'm happy to meet for coffee in SF with any founders who want to talk about SaaS sales in detail. I was the first sales hire at PagerDuty. Email in profile.

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.

hunvreus• 11 years ago

I'm most likely gonna take you up on that offer.

kephra• 11 years ago

Let define "enterprise customer" first. This is someone for whom the terms, conditions and prices of your website do not apply. Enterprise customer = Ask for quotes. So you might delay the question of how they pay you, once you have an enterprise customer ready to sign.

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.

gk1• 11 years ago

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.

petercooper2• 11 years ago

You know you're dealing with a very enterprise customer when they automatically give a discount of this nature to themselves when you bill them using their own billing system (I seem to recall MS's vendor system does this).

tomjen3• 11 years ago

Then 1% for 4 days should work equally well, right?

sologoub3• 11 years ago

Marking invoices with 2%/7 NET 30 or any variation thereof is definitely a great practice.

The shorthand means X% discount if paid in Y days, with full amount due in 30.

eitally11• 11 years ago

The other common game is the "our fiscal quarter/year is about to end and if you sign by X date we'll be able to give you Y discount." Since most of the time enterprises don't accelerate for anyone, especially a small contract, this bluff is pointless and if your sales guy gets called out for bluffing, they'll be disinclined to do business with you in the future. But, on the other hand, it can sometimes work, and work VERY well. One of our suppliers negotiated with us to sign a 3yr, $5m+ deal rather than a 1yr, $1.8m deal simply by telling us we could lock in pricing if we committed to the longer term. Since it's a SAAS service, they'll getting a ton more money up front, at no extra cost to them. ... Or are they... this is the customer I mentioned in a different comment, where we negotiated quarterly instead of annual payments. It's a great example of a BATNA: we got favorable terms that impact our cash flow much less, plus guaranteed pricing for 3 years on a large opex budget item, and they locked us in for 3 more years with guaranteed on schedule quarterly payments. Everyone loves smooth (as opposed to peaky) sales forecasts.

koddi• 11 years ago

This will vary by contract size and type, but for us, it's a split down the middle of monthly check or wire on annual contracts. In our experience there is a line somewhere around $1000/month where credit cards aren't commonly used.

mpr3• 11 years ago

$1k/month is by wire/cheque. Below that is credit card.

GolfyMcG• 11 years ago

We sell to large healthcare companies for anywhere from $1,000's to $100,000's and it's almost exclusively checks in the mail.

BjoernKW• 11 years ago

I'd say it very much depends on the country and the price range.

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.

sologoub3• 11 years ago

My experience is that this largely depends on the procurement practices of the company and whether or not your price range is low enough to be below discretionary expense limits.

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...

smackfu2• 11 years ago

Software procurement also tends to get hung up on EULAs because someone decided they want a fancy indemnification section that that lawyers at EnterpriseCorp don't want to agree to.

sologoub3• 11 years ago

That, a long with many many other things that become a matter of getting a rubber-stamp from some stakeholder that is protecting a fiefdom, but doesn't really have anything to do with why that software is being bought.

Although, legal review is always a good idea to make sure you understand what you are agreeing to.

eitally11• 11 years ago

Just to use an example fresh in my mind... we're a Google Apps customer and bought a bunch of Lucidchart licenses to help wean people off Visio. One of the things Lucidchart does that, if we had known about it beforehand, we'd have written into our terms, is that they refuse to delete accounts even after a person's Google account is deleted, so we end up paying for licenses for terminated employees unless we physically add Lucidchart as a checklist item in our termination process, and then pay a guy to go do the needful and de-allocate it. Lucidchart is cheap by comparison to lots of things, but managing licenses is a pita (and they are by no means the only offender).

BorisMelnik• 11 years ago

check, sometimes wire. some of the ones under $5k/monthly will do credit card or do net 30/60

petercooper2• 11 years ago

They cut a check every month? Or do you group it up into invoicing every 3/6/12 months?

patio112• 11 years ago

Overwhelmingly: Send a quote for the upcoming year, get a PO number corresponding to the quote, send an invoice referencing the PO number, wait an interminable amount of time, a check magically appears in the mail.

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.

linuxfault2• 11 years ago

NET 30 baby

ceejayoz2• 11 years ago

Given that @patio11 can have "late" checks, I presume there's already such a thing in place. The problem is what you do when they let 30 days fly by. Many of the recourses available to you aren't worth the risk of losing the client by being a hard-ass.

patio112• 11 years ago

The customer believes that it paid NET 30 ("You received the check within 30 days of us deciding to send you a check. NET 30!") and that I can speak to Legal if I want to press the issue, which (naturally) I don't.

As near as I can tell, this is just priced into everyone's expectations.

mikeryan• 11 years ago

I've found very few Enterprise customers comfortable with NET 30 terms. We're an interactive agency any deal we do is worth a considerable percentage of our annual income so we don't get too hung up on payment terms unless we're in a cash crunch. NET 30 is "nice" but if you can't do a deal because the terms are NET 60 instead of 30 then you need to figure out why cash is so low...

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.

jpkeisala• 11 years ago

Bigger company less they care about due dates on the invoice.

cpncrunch• 11 years ago

They can speed things up if they want to. I hope you're not providing your service for free for 9 months. At some point you need to give them a deadline. It's easy with SaaS, as you can just flick off the switch if they don't pay. Obviously with a large, important customer you don't want to immediately deactivate their account if they are overdue by a day, but you have to have a limit!

eitally11• 11 years ago

Can confirm! My company's typical turnaround time when requesting a PO for non-critical stuff is probably 10-14 days (and trust me, it irritates EVERYONE!), but if someone absolutely has to be paid or something absolutely much be obtained ASAP, we break all our internal rules and can get same day POs. This is obviously not something to be abused, but I wanted to emphasize that you're right.

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.

tonyedgecombe• 11 years ago

This is my strategy for my desktop software, I always make sure the purchasing department and users know ahead of time what is about to happen.

amirmc• 11 years ago

The missing step here is the 'internal champion'. It's usually possible to speed things up if someone within the company is able to push things. I've done this for certain suppliers when we've negotiated favourable terms so I spent an additional 2hrs figuring out exactly who I had to nag to get it expedited.

Of course, it's easier not to care but you can make it a negotiating item (if that's part of your sales process).

eitally11• 11 years ago

Here repping enterprises, can confirm this is how things work. But we don't pay late out of malice. Often incompetence and apathy, sure, but we don't actively set out to cheat you guys.

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. :)

tankenmate2• 11 years ago

In the EU there is the better payments directive to handle exactly this problem; big companies dragging their feet with smaller suppliers. The law requires NET-30 unless otherwise specified and anything above NET-60 in a contract is normally considered unconscionable. Of course the big companies can fudge that by complaining about issues with supply or by querying amounts, not enough description of supplied services, SLAs etc and delay it that way; but the big companies do run the risk of the regulators coming down on them.

nulltype• 11 years ago

How does this trick save you money? I'm not really clear on the details of enterprise payments.

Lordo• 11 years ago

Interesting. Thanks for the insight in to your world :)

eigenvector• 11 years ago

Here repping enterprises, can confirm this is how things work. But we don't pay late out of malice. Often incompetence and apathy, sure, but we don't actively set out to cheat you guys.

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.

FooBarWidget• 11 years ago

Really? And here I always thought enterprises pay at the last minute (or late) in order benefit from inflation. If you have lots of money, then even benefiting from a 0.0001% inflation is worth it.

antaviana• 11 years ago

I really hate it when Enterprise customers force us to compete unfaithfully with banks to finance them.

uptownJimmy2• 11 years ago

I cannot bring myself to upvote this wonderfully informative post.

yitchelle2• 11 years ago

Here repping enterprises, can confirm this is how things work. But we don't pay late out of malice. Often incompetence and apathy, sure, but we don't actively set out to cheat you guys.

This one really makes me laugh. Can I use the same excuse when I am late in delivering your order?

bigiain• 11 years ago

On the plus side, there's also often very little motivation for the person doing step 2 "provide a PO number" to not sign up for a dollar amount that comfortably covers your expected "interminable amount" of time you'll be providing their purchasing department with credit. You _do_ need to anticipate and factor it in up front though - you can't come back 4 months into the process and say "hey, the price just retroactively went up because you're so slow paying!".

rtpg• 11 years ago

aren't late fees the solution to this? I don't know exactly how you have to set it up in the signing contract, but if everyone's always paying you late then putting a "after 60 days a 20% late fee is applied" seems like a good way to either get paid or get more revenue (and in any case get your invoice taken seriously).

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.

andyjdavis• 11 years ago

In theory late fees would work well but in practice a large enterprise dealing with a small supplier is likely to do one of two things:

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.

pc86• 11 years ago

putting a "after 60 days a 20% late fee is applied" seems like a good way to either get paid or get more revenue

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.

ibejoeb• 11 years ago

I typically bill a 3-year license on an order form in advance, which basically follows this procedure. It gets settled several months after invoice. For services, I provide a statement of work and an invoice.

Perhaps unexpectedly, I did 2% 10 Net 30 for gov't, and I was almost always paid on time.

zura• 11 years ago

Another interesting question: Who decides in the Enterprise that the given price makes sense? And how it is done...

You mentioned six-figures - it can be low, mid or high six.. So does anybody thinks about this there? :)

eitally11• 11 years ago

It depends who's asking, whose budget it hits, what the capex forecast looks like (if it's capex at all), whether the street is currently favorable toward opex (typically reported as "SG&A cost" or "administrative overhead") at the corporation, and how badly the company needs what you're selling. Internal politics weighs heavily, especially in prioritizing spend. Some things that are really important get ignored just because the stakeholder can't sell it to their exec sponsor. Some things that are complete wastes of money are bought because of the opposite. Sales is freaking hard and the only consistently successful way to work with large companies is to bend over backwards to get to know them as well as they know themselves... almost to the point that you're consulting for them.

bvanslyke• 11 years ago

Bitcoin, overwhelmingly.

blumkvist• 11 years ago

Enterprise customers?

Please wake up from your wet dream.

shillster• 11 years ago

Microsoft's data centers have been used for mining for over a year and its been used by internal teams to compensate people outside the company (working with open source vendors) and its a very convenient way to bypass the age old fight for money in the budget.

normloman• 11 years ago

Twist: OP is a drug dealer.

BallinBige• 11 years ago

High ticket ACH is the way to go. (5k or above)

Fee's to the merchant will be less < 1%.... The key is finding a processor who will take on that risk

vivekpreddy• 11 years ago

If you're a startup selling to the enterprise, I would highly encourage billing upfront. Collecting cash upfront has huge ramifications for cash flow and how fast you can grow the business.

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.

damoncali• 11 years ago

Whatever the contract says. But if you have a long term deal, I would recommend quarterly, or preferably annual billing. Dealing with checks is a pain. In my experience, big co's are no more or less likely to pay on time than anyone else. But they don't tend to pay early.

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.

raverbashing• 11 years ago

Funny how in the US paying with cheques is still a thing

Cheques are practically non-existent in Europe. SEPA all the way.

mixmastamyk2• 11 years ago

I liked the system in New Zealand, in the US it's still the 1970's for payments.

yitchelle2• 11 years ago

Can you elaborate the New Zealand's system?

mrgriscom• 11 years ago

Seriously, it's fucking embarrassing.

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???

mcherm• 11 years ago

Well, if I'm sending out payments then that's several days of "float" where I'm still earning interest on the money because all those physical pieces of paper are still in transit. So given the choice, why wouldn't I go with the less efficient process?

(That's a rhetorical question - but feel free to answer it if you feel so inclined.)

Flemlord• 11 years ago

Seller of financial services software for large wealth managers here. Checks or wires, annually or quarterly in advance. 3 year contracts with a minimum of $10k in annual revenue.

smacktoward• 11 years ago

Slowly.

BRValentine• 11 years ago

We try to get as much as possible up front, with a minimum of half of the first year up front. After that it's monthly or quarterly payments, depending on what we negotiate. So far all payments have been by check.

For context, we're early stage with a handful of initial customers, mostly small companies. Deal sizes in the five figures per year.

jeremyw• 11 years ago

There is justified pessimism here about getting enterprise checks paid on time. An early colleague taught me to make relationships inside the accounting department, address invoices and questions to one or two people specifically and personally thank them for their time. For that small effort (15 minutes per month), I get direct reminders about deadlines and payout boundaries, and consistently good paper turnaround. Doesn't work universally, but holy cow when it does.

GordonS• 11 years ago

Late. That's how :/

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 :/

codecondo• 11 years ago

hackerboos• 11 years ago

BACS transfer in the UK.

superflit• 11 years ago

I will say something that is very unusual but I hope other fellow HNers do the same...

They pay me in CASH inside a cool envelope.

And it feels great seeing real cash, the volume and smell.

snowwrestler• 11 years ago

I purchase services on behalf of a company; not a huge one but has some "enterprise-y" trappings. That said, make sure you're doing thinking and research about the companies you are targeting with your business. There's no one answer that covers all B2B transactions.

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. :-)

cperciva• 11 years ago

Some of my largest customers pay me via Paypal. I've offered to take credit cards or ACH, but apparently they like Paypal.

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.

XERQ• 11 years ago

Not quite a SaaS company, but I'll chime in anyway. For SSD Nodes we've done "trials" for enterprises with an explicit expiration date where the service gets disabled if we don't receive their payment. This tightens our AR and incentivizes them to push the payment through their channels faster.

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.

whiskykilo• 11 years ago

Always wire payments. My consulting clients are mostly based in Europe for their HQ's, so they don't believe in checks. They also are very timely, within 5-7 days of a NET30. Like clockwork.

curiously2• 11 years ago

here's a related question.

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?

throwaway8490• 11 years ago

In the USA, banks will only accept one or two checks for deposit to your personal account if you're using a fictional company name before demanding you create a business account.

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.

curiously2• 11 years ago

okay well im in Canada

ci5er• 11 years ago

In the US: Up-front, monthly or annually (for a discount), ACH. On one of my current projects, we gave a MAJOR discount to our first two customers for 3-year contracts paid up front. The projects were large enough that this almost (for certain definitions of 'almost') funded the product/service development.

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.

OceanPowers• 11 years ago

monthly billing on the 1st, 30 day net.

kvanderd• 11 years ago

fwiw -

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.

mariogintili• 11 years ago

Annual contract here

ryanelkins• 11 years ago

Every customer of mine pays through a bank transfer.

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.

Ask HN: How do your enterprise customers pay you?

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