So one thing that’s back now is customers asking for longer payment terms. Not all of them, and not in every industry. And if your customers pay on credit card, for the most part, this won’t matter.
But customers you invoice, in many cases, are again asking for much longer than classic Net 30 terms. This isn’t new. We see it every time an industry comes under stress. It’s one of the classic ways a Procurement and/or Finance department manages cash.
And it’s super stressful on startups, especially earlier-stage ones. Hooray, you closed a big annual or even 2-year deal! That’s great. But … they want Net 90 to pay. And then … they pay late. 😉
I wish I had a magic playbook to help, but I do have a few learnings and thoughts:
- It’s OK to push back, but you do need to listen. Some BigCos won’t care at all if you push back. Others will, though. Your champion likely doesn’t benefit from longer payment terms themselves. So if you’ve really helped them during the sales process, they’ll often go to bat for you. But sometimes, even going to bat for you will only help so much.
- It can be hard to tell when exceptions are made. Most BigCos have some leeway from their policies but want to hit overall targets for payment terms. So if their goal, say, is to stretch average payments from 30 to 60 days, they can make some exceptions, but not that many. It can be almost impossible to tell from the outside.
- Most procurement and finance teams will still honor a contract that’s signed. If you can get the deal just signed with standard terms (Net 30 or better), most companies will honor the terms. So if you can get a deal signed as simply as possible with Net 30 or better terms, usually no one later asks for longer payment terms.
- Make sure you are budgeting at least for longer payment terms. So it doesn’t become too much of a stressor.
- Sometimes, sometimes, longer payment terms work in your favor, especially toward the end of the year. How? Well, sometimes it lets your champion sign a deal now instead of next year. It really depends on how accounting is done. Signing now but paying later doesn’t really help a BigCo with cash per se. But it can push the payment of that cash into next year’s planning in many cases. You have to really listen here to know if it’s true. But a deal signed today and paid at the start of next year is usually better than waiting until next year to sign the deal. Time adds risk to every deal. A lot of risk.
- Annual deals aren’t always so wonderful. VCs and others constantly talk about the magic of annual deals vs. monthly on credit card, but one of the downsides is you have to do collections, and wait for the cash. Credit cards don’t look so bad when collections gets harder.
Try to stick to your guns on Net 30 payment terms, or even better. After all, it benefits no one that much in the end to make vendors squirm to get paid. It manages the cash float a tiny bit better, but it’s a marginal benefit in the end.
Stick to your guns, and try not to make exceptions. And when you do, ask your champion to try to still push for the best payment terms possible.
But budget for them overall getting worse.
Having said all this, I’ll share one anecdote. We sort of ran an accidental A/B test here at SaaStr on some of our partner revenue in Q3, about $4m worth, on payment terms. About half were offered flexible terms, about half were forced into standard terms with no exceptions. The end result? Both closed at the same rate.
A related post here: