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.
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. :)
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!".
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).
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!
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.
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.
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.
> 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 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.
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...
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.
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.
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 :/
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???
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.
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.
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. :-)
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.
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.
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.
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.
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.
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.
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.
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.
[+] [-] patio11|11 years ago|reply
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.
[+] [-] eitally|11 years ago|reply
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. :)
[+] [-] bigiain|11 years ago|reply
[+] [-] amirmc|11 years ago|reply
Of course, it's easier not to care but you can make it a negotiating item (if that's part of your sales process).
[+] [-] cpncrunch|11 years ago|reply
[+] [-] ibejoeb|11 years ago|reply
Perhaps unexpectedly, I did 2% 10 Net 30 for gov't, and I was almost always paid on time.
[+] [-] rtpg|11 years ago|reply
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.
[+] [-] zura|11 years ago|reply
You mentioned six-figures - it can be low, mid or high six.. So does anybody thinks about this there? :)
[+] [-] linuxfault|11 years ago|reply
[+] [-] jpkeisala|11 years ago|reply
[+] [-] kephra|11 years ago|reply
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|reply
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.
[+] [-] eitally|11 years ago|reply
[+] [-] sologoub|11 years ago|reply
The shorthand means X% discount if paid in Y days, with full amount due in 30.
[+] [-] sologoub|11 years ago|reply
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...
[+] [-] smackfu|11 years ago|reply
[+] [-] lanstein|11 years ago|reply
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|reply
[+] [-] GordonS|11 years ago|reply
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|reply
[+] [-] raverbashing|11 years ago|reply
Cheques are practically non-existent in Europe. SEPA all the way.
[+] [-] mrgriscom|11 years ago|reply
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???
[+] [-] mixmastamyk|11 years ago|reply
[+] [-] vivekpreddy|11 years ago|reply
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.
[+] [-] jeremyw|11 years ago|reply
[+] [-] snowwrestler|11 years ago|reply
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|reply
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.
[+] [-] BjoernKW|11 years ago|reply
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.
[+] [-] damoncali|11 years ago|reply
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.
[+] [-] Flemlord|11 years ago|reply
[+] [-] GolfyMcG|11 years ago|reply
[+] [-] ryanelkins|11 years ago|reply
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.
[+] [-] ci5er|11 years ago|reply
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.
[+] [-] koddi|11 years ago|reply
[+] [-] XERQ|11 years ago|reply
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.
[+] [-] superflit|11 years ago|reply
They pay me in CASH inside a cool envelope.
And it feels great seeing real cash, the volume and smell.
[+] [-] BallinBige|11 years ago|reply
Fee's to the merchant will be less < 1%.... The key is finding a processor who will take on that risk