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^ 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 i

^ 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
        Agreed with a caveat. Having actually worked with BofA, the amount of overhead for a contract could have put me out of business if I was not a BIG5 employee. The big boys are not even going to consider me unless I am a safe choice (they really don't care if I am a kickass programmer who can solve their problems - they want to do business only if I am a known quantity so that they don't get fired if a deal with me go sideways). I am really lucky to have positive cashflow because I can be picky about clients but a lot of friends ask me how to get started and my experience with cashflow is that a fantastic business with client set A can absolutely fail compared to the exact same business with client set B just because of cashflow issues. Maybe I am too old and jaded but now I always ask people to include and test for cashflow in addition to the efficacy of their business ideas vis. market fit. Honestly though, this becomes too demanding of entrepreneurs who are already overworked with lead gen, product design and development as is. You should definitely write a few articles about cashflow. People don't write about it enough.
- subhobroto 8y ago
  I used to think that offering a 10% discount on invoice to clients for payments within NET30 would motivate them to pay early, but very few clients, specially those complaining about expenses ever made good use of that. Has this been your experience as well? ... and do you "outsource" your AR for a % of your invoices?
  - tptacek 8y ago
    I really don't think we even think about it that much. We have terms in our contract, and we send emails when payment is due, but it's not like we'd ever flip out if someone was late. You can try setting late payment penalties, but my experience has been that client procurement and legal people get those stripped off routinely. At Matasano, I remember one of our anchor customers taking something close to a year to pay an invoice.
    - subhobroto 8y ago
      > You can try setting late payment penalties, but my experience has been that client procurement and legal people get those stripped off routinely. That at best. others just "forget" about the late payment penalties in my experience. The sibling comment from @mrhappyunhappy is interesting but when I tried it, clients would rarely pay the premium.
      - catherd 8y ago
        Late payment penalties are nice, in my experience, because it gives you an extra drum to beat when you are chasing down payment. But they are never actually paid. I just try to identify anyone who has an accounting (+20%) or purchasing (+50%) department and automatically add to my quoted fees. That premium, the imaginary late payment fee, and occasionally stopping work until the client gets caught up generally makes the situation manageable.
  - mrhappyunhappy 8y ago
    As a consultant I state that I will charge a 10% late fee for every week a payment is late. I’ve never had a late payment. I’d say offering a discount does the exact opposite.
- kenneth 8y ago
  You can get credit specifically to solve for that issue, usually at reasonable rates. Short-term small business loan facilities exist. Another decent option if you're reasonably sure you'll receive payment NET30 are credit cards + an online bill-pay service like Plastiq.
  - subhobroto 8y ago
    > receive payment NET30 are credit cards + an online bill-pay service like Plastiq I personally have helped out a few businesses with a 2% CB CC (which helps offset the Plastiq fees) that offers a 6-mo 0% APR term but the CL is the limit of the loan which limits the extent of the loan. Most CCs don't have such gracious terms in which case you could be paying a hefty fee to gain that cashflow. Having done this a few times, my conclusion is that this is a very bad practise and exposes a business with cashflow issues if this is a regular occurence. A healthy AR is better than no AR but you know what's even better? A healthy cashflow.
- caro_douglos 8y ago
  To double down on this it's worth finding out how the customer within the large company pays for things. Sometimes it was easier to get an annual or quarterly contract because that's how a company's accountants dealt with that employee/department's business expenses.
- bitexploder 8y ago
  We service Fortune 50 customers in a similar business to what Matasano did. This side of the business is definitely harder than the hacking / technical work. It can be tough to deal with and structuring bigger deals is important. Fast payment is not only important to not being at risk, but a short cash conversion cycle is basically more capital available at lower revenue. Kind of like velocity in the Agile dev world, only for money. There are diminishing returns (edit: in attempting to lower CCC) and large customers will throw you into the meet grinder that is their AP.
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.

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
      Agreed with a caveat. Having actually worked with BofA, the amount of overhead for a contract could have put me out of business if I was not a BIG5 employee. The big boys are not even going to consider me unless I am a safe choice (they really don't care if I am a kickass programmer who can solve their problems - they want to do business only if I am a known quantity so that they don't get fired if a deal with me go sideways). I am really lucky to have positive cashflow because I can be picky about clients but a lot of friends ask me how to get started and my experience with cashflow is that a fantastic business with client set A can absolutely fail compared to the exact same business with client set B just because of cashflow issues. Maybe I am too old and jaded but now I always ask people to include and test for cashflow in addition to the efficacy of their business ideas vis. market fit. Honestly though, this becomes too demanding of entrepreneurs who are already overworked with lead gen, product design and development as is. You should definitely write a few articles about cashflow. People don't write about it enough.
subhobroto 8y ago
I used to think that offering a 10% discount on invoice to clients for payments within NET30 would motivate them to pay early, but very few clients, specially those complaining about expenses ever made good use of that. Has this been your experience as well? ... and do you "outsource" your AR for a % of your invoices?
- tptacek 8y ago
  I really don't think we even think about it that much. We have terms in our contract, and we send emails when payment is due, but it's not like we'd ever flip out if someone was late. You can try setting late payment penalties, but my experience has been that client procurement and legal people get those stripped off routinely. At Matasano, I remember one of our anchor customers taking something close to a year to pay an invoice.
  - subhobroto 8y ago
    > You can try setting late payment penalties, but my experience has been that client procurement and legal people get those stripped off routinely. That at best. others just "forget" about the late payment penalties in my experience. The sibling comment from @mrhappyunhappy is interesting but when I tried it, clients would rarely pay the premium.
    - catherd 8y ago
      Late payment penalties are nice, in my experience, because it gives you an extra drum to beat when you are chasing down payment. But they are never actually paid. I just try to identify anyone who has an accounting (+20%) or purchasing (+50%) department and automatically add to my quoted fees. That premium, the imaginary late payment fee, and occasionally stopping work until the client gets caught up generally makes the situation manageable.
- mrhappyunhappy 8y ago
  As a consultant I state that I will charge a 10% late fee for every week a payment is late. I’ve never had a late payment. I’d say offering a discount does the exact opposite.
kenneth 8y ago
You can get credit specifically to solve for that issue, usually at reasonable rates. Short-term small business loan facilities exist. Another decent option if you're reasonably sure you'll receive payment NET30 are credit cards + an online bill-pay service like Plastiq.
- subhobroto 8y ago
  > receive payment NET30 are credit cards + an online bill-pay service like Plastiq I personally have helped out a few businesses with a 2% CB CC (which helps offset the Plastiq fees) that offers a 6-mo 0% APR term but the CL is the limit of the loan which limits the extent of the loan. Most CCs don't have such gracious terms in which case you could be paying a hefty fee to gain that cashflow. Having done this a few times, my conclusion is that this is a very bad practise and exposes a business with cashflow issues if this is a regular occurence. A healthy AR is better than no AR but you know what's even better? A healthy cashflow.
caro_douglos 8y ago
To double down on this it's worth finding out how the customer within the large company pays for things. Sometimes it was easier to get an annual or quarterly contract because that's how a company's accountants dealt with that employee/department's business expenses.
bitexploder 8y ago
We service Fortune 50 customers in a similar business to what Matasano did. This side of the business is definitely harder than the hacking / technical work. It can be tough to deal with and structuring bigger deals is important. Fast payment is not only important to not being at risk, but a short cash conversion cycle is basically more capital available at lower revenue. Kind of like velocity in the Agile dev world, only for money. There are diminishing returns (edit: in attempting to lower CCC) and large customers will throw you into the meet grinder that is their AP.

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.