Hi there, I work for a Saas company and our finance team is lean (myself and controller). We have our customers agree to Net 30 Terms on our contracts when they buy our software licenses. However, I receive email from the customer stating they have Net 60 terms. This is important because we shut their license off if we don't receive payment. Should we respond and let them know they signed a contract? I've worked in ecommerce before where AR is nonexistent
A/R Net 30 terms stated on contract but customer pays on net 60
Answers
It all depends on a) volume of this customer, b) their payment record.
If they pay like clockwork, then it may not be an issue. If they are a significant player, it may not be an issue.
If you feel as if you're being played, cut off their access, but be aware they may also leave...
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Thanks Wayne. Making the judgement call can be a pain - I wanted to make it pretty standards for all customers, but your answer makes total sense.
Anon
I would start by discussing this with your sales manager/head of sales and of operations, and if the customer is large enough, with your CEO.
Summarize the issues for them, quantify the impact, assess the risks, propose some solutions. But do not call the client or cut them off alone.
Think of some ways to show your colleagues you understand the issue and are trying to help. Right now your cash flow from them is 30 days late, but you at least get it in the end. I don't see how cutting off 100% of that cash is a good idea, unless something is terribly wrong/risky with this account. And your note does not indicate that, just simply they prefer 60 days credit.
Depending on the size of the customer, Net 60 may be their standard PO terms no matter what the contract says. I worked for a large tech company that paid 2/10 Net 60. No one ever authorizes a 2% discount, so employees had to work around this rule in favor of paying the vendor in full. I agree with the other comments to let it go if they consistently pay within the terms they set.
I have come across this issue throughout my entire career. Me personally, I have a problem with letting customers write their own terms. What's the point of having a contract? The reality of it is it probably boils down to two choices: Be prepared to lose the contract or be prepared to live with the net 60 payments. If this happens a lot and market conditions allow, factor it into your pricing going forward.
I tend to disagree with the comments stated above. Even if the customer pays consistently on time with the 60 days condition, they still - if I interpret your words correctly - they did sign the 30 day contract. They should have not signed it if their standard condition is 60 days.
Even if the company is big, they should not let their suppliers do their financing. This practice by large companies forcing their suppliers to at laesty partly finance them with longer payment terms has to stop.
But, it does not help fighting this war on your own. So in the end, decide on whether you can afford to lose this customer or not. A talk with them might help. If not, and they are very small, you could just stop doing business with them. If they are too large a part of your business, you might have to give in.
In the long run, be careful that word does not get out, and other customers demand the same payment terms.
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Gerard I do agree, but let's look at reality.
When you are small, you can't afford to lose many accounts period, especially a large account.
I agree 100% with your second paragraph, but one company isn't going to succeed, and you still need to remain in business.
It's all about leverage and pain; whether you have it or can endure it.
After reading the above replies, I would recommend a proactive approach to solving. Tell the customer their service can be shut off if they don't pay within terms, but give them plenty of notice and attempt to speak to someone in charge of making the decision on paying company. After two months of non-compliance/notices, shut them down. I had this situation in a hosted software company. You would be surprised how effective this can be. You have the perfect leverage.
What are the terms after net 30? How about charging them interest?
Our team provides A/R consulting services for SaaS companies. I agree with the comments above, specifically enforcing your terms according to the letter of the contract. The last thing you want to have occur is bad precedent with clients paying you according to their terms. Involving Sales or Account Owners in the early stage can be useful, but only to a certain point. Sending potential shut off notices at 30 and 45 days past due, , and then ultimately shutting off service. Its imperative that your client management (whomever executed contract) are aware, and you are not merely sending notices strictly to A/P underlings.
Good luck!
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Philip,
See my response to Gerard. One needs to look at more than the contract, because if you don't have the leverage to enforce it you can lose more than just 30 days on the payment terms...
Lawsuits are extremely expensive. Having worked for an owner who wasted more money on idiotic lawsuits only to settle, don't be so fast to tout "contract".
The loss of a customer can be devastating to the business on a whole realm of levels..
The world is not black & white, but shades of grey...
Who's advocating a lawsuit?
I referenced the contract because, well its a contract, but also because there could be a disconnect between A/P and whomever agreed to the terms at the customer. As a SaaS company, the leverage is there and can be swiftly enforced (shut off). Obviously, no need to wield a heavy hand at this point.
The question would be who pushed back on the Net 30? Was it the department or individual who executed the contract or simply an A/P person who may not be privy to the terms of the deal with this SaaS company? Sometimes terms are subjective to specific vendors. If you just impress again what the agreed terms are the customer could happily adjust. Sales should make that initial approach. If they push back again, then you have a decision to make on tact.
It may be that a customers comfort and confidence with a product or service is reflected in their own payment policy with particular vendors. For a SaaS company looking at net 60 or beyond, if a customer(s) misses 2-3 payments, you are staring down a real issue with cash flow on a customer(s) now 6 months behind in payments.
Sometime's buyer's remorse can occur as well as attrition within purchasing department or budgeting changes. When you have terms beyond net 30 missed payments compound very quickly. That's a pain point referred to as churn.
Again, agree with all points of view above,... being proactive and communicate effectively.
Have a great weekend everyone.
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Phil - you are correct, I stand corrected (ref: lawsuit).
Your other points are equally as valid.
You too, enjoy the weekend!