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I chased and successfully won a huge customer for my small and fledgling startup. I chased and successfully won a sole service contract for a key part of their

I chased and successfully won a huge customer for my small and fledgling startup. I chased and successfully won a sole service contract for a key part of their business process. I allowed a credit situation with them to grow over the course of 3 months while I allowed them to have 60 day terms. And then, they went out of business and left me holding the bag with $150,000 in unpaid AR after I spent $90,000 generating that AR with them. The lesson is never trust the size of a company as sufficient reasoning that they can and will pay their bills.

burlesona 8y ago
I’ve been through something very similar, and I know how much that bad to hurt. Hope you’ve had time to rebound and recover, and thanks for sharing your story!
MisterOctober 8y ago
^ this is real talk. Big companies love to be behind on AP for a variety of reasons, among them: - Their own 'highly matrixed' organizational structure makes it near impossible to find 'the correct person' to talk to about accounting issues, let alone get a straight answer out of them - so chasing these issues down becomes a huge drag on your time and energy and you may very well just give up after a while - Past-due invoices are typically penalized with tiny interest percentages [in the <2% range], so even if they do intend to pay eventually, they can gleefully treat you as a bank with really low interest on short-term loans. - They know full well that you, the small company, probably aren't willing to put up the massive time and dollar resources in order to sue them, the big company, for what is to them small potatoes. They have a bench full of experienced attorneys, you might have a single one, and they know exactly how to extend and complicate a legal process such that the litigation itself costs you far more than the outstanding AR.
- edoceo 8y ago
  Some of these tricks are laid out in "Das Kapital". I found that book to be very educational.
- tptacek 8y ago
  A lot of this is probably true, but it's really to your benefit to understand, as a businessperson, that this is generally how large clients expect to conduct business. You can fight it and even establish better payment terms, but it isn't always worth it. It's usually cheaper just to build a business that is resilient to late payments. Over the last 15 years or so, a lot of my best customers have been super-late payers. You take the good with the bad.
  - MisterOctober 8y ago
    No doubt about it. An effect of the behavior set I describe above [and I was only describing them -- I've been on both ends of that phone call over the years] is that in these relationships, the established payment terms are kind of irrelevant to the way things actually play out.
    - subhobroto 8y ago
      You are getting me really curious now. I have tackled this issue (late payers) in two ways: 1. My cashflow from other investments ensure I did not run out of money. This is a bad design where I am effectively extending a 0% APR loan to the client with a term of their choosing 2. When I have ARs large enough to entice "parties that handle payments", I choose to let them handle the invoices on my behalf for a cut. A pretty large cut but 80% is better than 0%. I am effectively looking for a way to optimize the later but happy to hear alternative solutions, specially when the ARs are not large enough to outsource. For a bootstrapped business, this cashflow can be critical.
      - tptacek 8y ago
        I mean, if you're careful about who you work with, 0% isn't really a meaningful risk. Bank of America (or, for that matter, Airbnb) isn't going to default on you; the pain the ass you could generate if they did would cost more than the invoice.
        subhobroto 8y ago
- notyourday 8y ago
  Turning off a customer and refusing to turn them back on until the wire hits the account solves all kinds of problems.
  - subhobroto 8y ago
    Might not work in all cases. I have excellent clients who could not afford to pay for a consultation because they themselves were waiting on the client they were farming out jobs from. They still work with me because they know I understand their cashflow issues.
    - notyourday 8y ago
      That's a self-created problem. It is possible to remain in business while self-creating problem. It is, however, not recommended. We once were jerked around by a reasonably well known customer. Their accounting people decided they did not need to perform under the payment terms the customer signed off on. First time they did it, I sent an email to the EVP that signed the order. We got an apology and a payment. The next month the same thing happened again - we redirected all their traffic to "We are unable to process your request - please contact your account coordinator to restore access" message and did not remove it until the wire hit our account ( 5pm-8:02am ). We received a letter with apologies from the customer's CEO, customer was saved and they never missed a payment again. I heard, via the grapevine, that three people at the customer's AP group were shown the door as the result of our message.
      - Drdrdrq 8y ago
        I admire you for taking a stand, and even more for being able to climb into a position where you could pull this off. Kudos.
    - restalis 8y ago
      This really irks me. Are you my customer or are you some kind of onerous business partner so that I have to share the consequences of your business decisions? Sorry, get a bank loan and pay me, then solve the rest of your problems with your client and the bank (i.e. without me).
- Fiahil 8y ago
  My previous employer was asking money upfront, the late payment problem was still here and kicked down the road until renewal, but at least the first year was payed in advance which allowed to bootstrap the business.
- cm2187 8y ago
  Also large organisations tend to be horribly bureaucratic, with multiple layers of authorizations and people who happily sit on everything for weeks before they even consider lifting a finger or responding to an email.
- GFischer 8y ago
  they can gleefully treat you as a bank with really low interest on short-term loans Exactly. On MBA finance courses (and I guess CPAs too) you're taught about working capital - and one half of that is basically stretching supplier payments as far as you can.
- cube00 8y ago
  > They know full well that you, the small company, probably aren't willing to put up the massive time and dollar resources in order to sue them, the big company, for what is to them small potatoes. If they are well known enough surely a well placed social media post is all that's needed to oil the wheels.
- maerF0x0 8y ago
  >Past-due invoices are typically penalized with tiny interest percentages [in the <2% range] That 2% is usually monthly, so the APR is more like CC debt, not bank loans.
beilabs 8y ago
A single company I had a long term business relationship had a similar issue with me. Thankfully I had moved to a developing country and was able to bring costs way down as a result. If I had stayed put, back to work in a cubicle for a time I guess...
cataflam 8y ago
I'm curious, how much would you have paid to be protected from this kind of risk and make sure you'd get your money?
- jwatte 8y ago
  Isn't that what factoring does? That's a well established line of business for a very long time. And because you sell your invoices, the factor now takes the payment default risk. Does cost a penny though.
  - shodan666 8y ago
    It's not that expensive. Typically just 2-4 % per invoice. It's worth it.
numbsafari 8y ago
I’ve seen similar situations in the past. My experience has been that small business will get excited about “hitting it big” and allow a massive customer to suck up all their resources to the point where sales and marketing are put on hold or altogether stopped, leaving them totally dependent on that one customer for cash. I’m curious if your experience in this case was similar.
goatherders 8y ago
Had the same situation and thankfully had a lawyer that was able to get back 90% of what was owed in about 90 days. Big companies dont recognize that there are people at the end of their invoices sometimes. Sucks.
randomsearch 8y ago
(NB not criticising you here, but pointing out a cultural problem). This is a classic cash flow problem in business. Any very simple (usually free) “start a business” course from local government in the UK will cover this. I went on such a course and they explicitly talked, in detail, about this issue. They flagged it as a major cause of business failure. Point being not to criticise the parent but to emphasise that startups are not different from any other businesses when it comes the basics like cash flow. Something that really stands out in the startup world is how little regard is given to the simple everyday business issues that business advisors the world over teach about every day. Anyone starting a tech business should do a simple course on business basics, in this example it could literally have saved the startup for an investment of a few hours.
the_clarence 8y ago
Can someone in this thread summarize what are the terms? AR, AP, APR, retainer, etc.
- flaviojuvenal 8y ago
  AR/AP: https://www.diffen.com/difference/Accounts_Payable_vs_Accounts_Receivable https://www.diffen.com/difference/Accounts_Payable_vs_Accoun... APR: https://en.wikipedia.org/wiki/Annual_percentage_rate https://en.wikipedia.org/wiki/Annual_percentage_rate Retainer: https://www.investopedia.com/terms/r/retainer-fee.asp https://www.investopedia.com/terms/r/retainer-fee.asp
- tixocloud 8y ago
  AR: Accounts Receivable (money owed to you) AP: Accounts Payable (money you owe) APR: Annual percentage rate (usually converted from a different timeframe so you have a consistent timeframe to compare with other metrics) Retainer: A fee that you pay to get priority from a consultant, which may or may not come with services included.
  - michaelbuckbee 8y ago
    There's another overarching term that needs put in here: Cash Flow: the balancing of AP and AR so that you can stay afloat. Say your startup needs $10k a week to meet payroll. You have $20k in the bank and Accounts Receivable of $100k. "On paper" you have $120k. Cash flow wise you have 2 weeks of money left on hand. This situation is in constant tension as: - Large companies stall regularly on paying or require terms like "Net60", aka you complete the work, then send them an invoice, then they can take 60 days to pay that. - Public companies have to report their financials and will often manipulate their AP schedules to help "massage" their numbers. I was once told bluntly: "our CFO said we aren't paying any more invoices this quarter" - The reason large companies do this is they are also trying to balance their cash flow (just at a larger scale). The two general things to do to help with this situation: 1. Keep invoicing tight, bill as often and in as small as increments as possible. Better to ask for $20k every 2 weeks than $40k at the end of the month. 2. Offer discount terms where they pay less if they pay earlier.
shodan666 8y ago
This could solve half of your problems with late or non existent AR payments: https://en.wikipedia.org/wiki/Factoring_(finance) https://en.wikipedia.org/wiki/Factoring_(finance) It's worth it.
kryogen1c 8y ago
This is something my IT MSP does that surprised me: if one of our clients doesn't pay their bill, we stop servicing them. Even more surprising is that it happens pretty frequently. Companies (small to medium) aren't some machine with automatic parts; it's just people, and sometimes people don't pay their bills.

burlesona 8y ago

I’ve been through something very similar, and I know how much that bad to hurt. Hope you’ve had time to rebound and recover, and thanks for sharing your story!

MisterOctober 8y ago

^ this is real talk. Big companies love to be behind on AP for a variety of reasons, among them: - Their own 'highly matrixed' organizational structure makes it near impossible to find 'the correct person' to talk to about accounting issues, let alone get a straight answer out of them - so chasing these issues down becomes a huge drag on your time and energy and you may very well just give up after a while - Past-due invoices are typically penalized with tiny interest percentages [in the <2% range], so even if they do intend to pay eventually, they can gleefully treat you as a bank with really low interest on short-term loans. - They know full well that you, the small company, probably aren't willing to put up the massive time and dollar resources in order to sue them, the big company, for what is to them small potatoes. They have a bench full of experienced attorneys, you might have a single one, and they know exactly how to extend and complicate a legal process such that the litigation itself costs you far more than the outstanding AR.

edoceo 8y ago
Some of these tricks are laid out in "Das Kapital". I found that book to be very educational.
tptacek 8y ago
A lot of this is probably true, but it's really to your benefit to understand, as a businessperson, that this is generally how large clients expect to conduct business. You can fight it and even establish better payment terms, but it isn't always worth it. It's usually cheaper just to build a business that is resilient to late payments. Over the last 15 years or so, a lot of my best customers have been super-late payers. You take the good with the bad.
- MisterOctober 8y ago
  No doubt about it. An effect of the behavior set I describe above [and I was only describing them -- I've been on both ends of that phone call over the years] is that in these relationships, the established payment terms are kind of irrelevant to the way things actually play out.
  - subhobroto 8y ago
    You are getting me really curious now. I have tackled this issue (late payers) in two ways: 1. My cashflow from other investments ensure I did not run out of money. This is a bad design where I am effectively extending a 0% APR loan to the client with a term of their choosing 2. When I have ARs large enough to entice "parties that handle payments", I choose to let them handle the invoices on my behalf for a cut. A pretty large cut but 80% is better than 0%. I am effectively looking for a way to optimize the later but happy to hear alternative solutions, specially when the ARs are not large enough to outsource. For a bootstrapped business, this cashflow can be critical.
    - tptacek 8y ago
      I mean, if you're careful about who you work with, 0% isn't really a meaningful risk. Bank of America (or, for that matter, Airbnb) isn't going to default on you; the pain the ass you could generate if they did would cost more than the invoice.
      - subhobroto 8y ago
notyourday 8y ago
Turning off a customer and refusing to turn them back on until the wire hits the account solves all kinds of problems.
- subhobroto 8y ago
  Might not work in all cases. I have excellent clients who could not afford to pay for a consultation because they themselves were waiting on the client they were farming out jobs from. They still work with me because they know I understand their cashflow issues.
  - notyourday 8y ago
    That's a self-created problem. It is possible to remain in business while self-creating problem. It is, however, not recommended. We once were jerked around by a reasonably well known customer. Their accounting people decided they did not need to perform under the payment terms the customer signed off on. First time they did it, I sent an email to the EVP that signed the order. We got an apology and a payment. The next month the same thing happened again - we redirected all their traffic to "We are unable to process your request - please contact your account coordinator to restore access" message and did not remove it until the wire hit our account ( 5pm-8:02am ). We received a letter with apologies from the customer's CEO, customer was saved and they never missed a payment again. I heard, via the grapevine, that three people at the customer's AP group were shown the door as the result of our message.
    - Drdrdrq 8y ago
      I admire you for taking a stand, and even more for being able to climb into a position where you could pull this off. Kudos.
  - restalis 8y ago
    This really irks me. Are you my customer or are you some kind of onerous business partner so that I have to share the consequences of your business decisions? Sorry, get a bank loan and pay me, then solve the rest of your problems with your client and the bank (i.e. without me).
Fiahil 8y ago
My previous employer was asking money upfront, the late payment problem was still here and kicked down the road until renewal, but at least the first year was payed in advance which allowed to bootstrap the business.
cm2187 8y ago
Also large organisations tend to be horribly bureaucratic, with multiple layers of authorizations and people who happily sit on everything for weeks before they even consider lifting a finger or responding to an email.
GFischer 8y ago
they can gleefully treat you as a bank with really low interest on short-term loans Exactly. On MBA finance courses (and I guess CPAs too) you're taught about working capital - and one half of that is basically stretching supplier payments as far as you can.
cube00 8y ago
> They know full well that you, the small company, probably aren't willing to put up the massive time and dollar resources in order to sue them, the big company, for what is to them small potatoes. If they are well known enough surely a well placed social media post is all that's needed to oil the wheels.
maerF0x0 8y ago
>Past-due invoices are typically penalized with tiny interest percentages [in the <2% range] That 2% is usually monthly, so the APR is more like CC debt, not bank loans.

beilabs 8y ago

A single company I had a long term business relationship had a similar issue with me. Thankfully I had moved to a developing country and was able to bring costs way down as a result. If I had stayed put, back to work in a cubicle for a time I guess...

cataflam 8y ago

I'm curious, how much would you have paid to be protected from this kind of risk and make sure you'd get your money?

jwatte 8y ago
Isn't that what factoring does? That's a well established line of business for a very long time. And because you sell your invoices, the factor now takes the payment default risk. Does cost a penny though.
- shodan666 8y ago
  It's not that expensive. Typically just 2-4 % per invoice. It's worth it.

numbsafari 8y ago

I’ve seen similar situations in the past. My experience has been that small business will get excited about “hitting it big” and allow a massive customer to suck up all their resources to the point where sales and marketing are put on hold or altogether stopped, leaving them totally dependent on that one customer for cash. I’m curious if your experience in this case was similar.

goatherders 8y ago

Had the same situation and thankfully had a lawyer that was able to get back 90% of what was owed in about 90 days. Big companies dont recognize that there are people at the end of their invoices sometimes. Sucks.

randomsearch 8y ago

(NB not criticising you here, but pointing out a cultural problem). This is a classic cash flow problem in business. Any very simple (usually free) “start a business” course from local government in the UK will cover this. I went on such a course and they explicitly talked, in detail, about this issue. They flagged it as a major cause of business failure. Point being not to criticise the parent but to emphasise that startups are not different from any other businesses when it comes the basics like cash flow. Something that really stands out in the startup world is how little regard is given to the simple everyday business issues that business advisors the world over teach about every day. Anyone starting a tech business should do a simple course on business basics, in this example it could literally have saved the startup for an investment of a few hours.

the_clarence 8y ago

Can someone in this thread summarize what are the terms? AR, AP, APR, retainer, etc.

flaviojuvenal 8y ago
AR/AP: https://www.diffen.com/difference/Accounts_Payable_vs_Accounts_Receivable https://www.diffen.com/difference/Accounts_Payable_vs_Accoun... APR: https://en.wikipedia.org/wiki/Annual_percentage_rate https://en.wikipedia.org/wiki/Annual_percentage_rate Retainer: https://www.investopedia.com/terms/r/retainer-fee.asp https://www.investopedia.com/terms/r/retainer-fee.asp
tixocloud 8y ago
AR: Accounts Receivable (money owed to you) AP: Accounts Payable (money you owe) APR: Annual percentage rate (usually converted from a different timeframe so you have a consistent timeframe to compare with other metrics) Retainer: A fee that you pay to get priority from a consultant, which may or may not come with services included.
- michaelbuckbee 8y ago
  There's another overarching term that needs put in here: Cash Flow: the balancing of AP and AR so that you can stay afloat. Say your startup needs $10k a week to meet payroll. You have $20k in the bank and Accounts Receivable of $100k. "On paper" you have $120k. Cash flow wise you have 2 weeks of money left on hand. This situation is in constant tension as: - Large companies stall regularly on paying or require terms like "Net60", aka you complete the work, then send them an invoice, then they can take 60 days to pay that. - Public companies have to report their financials and will often manipulate their AP schedules to help "massage" their numbers. I was once told bluntly: "our CFO said we aren't paying any more invoices this quarter" - The reason large companies do this is they are also trying to balance their cash flow (just at a larger scale). The two general things to do to help with this situation: 1. Keep invoicing tight, bill as often and in as small as increments as possible. Better to ask for $20k every 2 weeks than $40k at the end of the month. 2. Offer discount terms where they pay less if they pay earlier.

shodan666 8y ago

This could solve half of your problems with late or non existent AR payments: https://en.wikipedia.org/wiki/Factoring_(finance) https://en.wikipedia.org/wiki/Factoring_(finance) It's worth it.

kryogen1c 8y ago

This is something my IT MSP does that surprised me: if one of our clients doesn't pay their bill, we stop servicing them. Even more surprising is that it happens pretty frequently. Companies (small to medium) aren't some machine with automatic parts; it's just people, and sometimes people don't pay their bills.