Dear SaaStr: How Hard Should We Push to Get Cash Upfront in Deals?
Offer it. Even make it the default for all bigger deals. But be careful in smaller ones, and where it’s not natural.
In theory, collecting upfront for annual and even multi-year contracts can be a fantastic strategy, especially in the earlier days of your B2B business when cash is tight.
But done wrong, it can add friction to deals that might otherwise close. Until you have a true brand, many will want to de-risk the purchase,
And later, trading a discount might not be worth the reduction in ARR and deal size you have to give up.
Here’s why it can work well:
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Immediate Cash Flow — If You Can Collect it Quickly: In the early stages, cash is king. Getting 2-3 years of revenue upfront can give you the runway to invest in growth, hire key team members, or even just sleep better at night knowing you’re not scrambling for cash.
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Customer Commitment: Annual and multi-year contracts do lock in customer more, reducing churn risk and keeping competitors at bay. If a customer has already paid for three years, they’re far less likely to shop around.
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Discounts Are Worth It Early On To Get the Cash: Offering a 10-20% discount for multi-year, upfront payments is often worth it when you’re small and need the cash. But be careful not to go beyond that—anything more than 20% starts to eat into your long-term ARR, especially if your churn is low and you’d likely renew those customers anyway
That said, there are a few caveats:
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Collections is Work. That Cash Often Takes Time to Receive. A net 30 contract that comes in late, for example, isn’t exactly immediate cash. And if you don’t have someone strong in collections and accounts payable, you can quickly find that upfront cash takes … months to get in practice.
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Don’t Overdo It: If you’re already cash-flow positive or have a strong balance sheet, you might not want to sacrifice future ARR for cash today. In those cases, it’s better to focus on maximizing long-term revenue rather than short-term cash.
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Customer Fit: This works best with larger customers who have the budget and confidence to commit to multi-year deals. Smaller customers or those new to your product might hesitate, so you may need to build trust first with shorter-term contracts. Again, forcing it is usually a mistake.
So cash up front on annual and multi-year deals is great.
But don’t let a spreadsheet rule your life.
Do what’s best for the customer. And more deals will close, and more quickly.
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