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0 pointsci5er9y ago0 comments

I'm not talking about card refunds. I'm talking about all the lags in ACH and all the ways that (under UCC) that consumers can grab their money back even after it already went through...

> Why would anyone agree to a 1.5% reduction in earnings to get their money now instead of tomorrow/2 days?

I have no idea. I don't live in that world. Sounds like some pawn-shop level need-for-cash to me.

But I do know that in business, factoring receivables is a thing. Dell used to expect vendors (such as Intel, but a lot of others too) to put their parts at the factory and then wouldn't take receipt of the part until it was picked from the bin for the purpose of placing it on the motherboard of a computer that had just been ordered and that they were now assembling. They'd essentially send Intel (or whoever) an email (well, EDI), and say: "Hey, we took receipt of your part. You can invoice us us net 60 now". Maybe it was net 30 - but I think it was 60. They worked out a deal where they'd send these through GE and GE would go to the manufacturers and say: "Dell owes you $10M in 60 days. You can have that (from us) in 30 days for a point and now for 2 points" (These were percentages, not basis points).

IF the vendor had been somebody that wasn't intel (and many were), waiting for 60 days (at least) after delivery of product to a site to get paid is a huuuge hicky on your balance sheet and a big factor in cash flow which constrains inventory turn over and growth.

Doing the volume and time shift of sums of money to allow mismatched transaction parties to match is a (the?) key thing that banks provide. They charge me - on whatever terms they like - to be able to close a transaction with a retail housing unit seller who expects 100% of the full amount today. My alternative would be to save up for 15 years. Most people don't want to do that.

I guess the issue here is that if someone doesn't want to pay 1.5% for that 48 business day hours (including holiday weekends), they'll wait. If they need the money, they'll take the hit.

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ig19y ago

I work for a peer-to-peer factoring marketplace startup (http://marketinvoice.com) so I can shed some more light on it. Typically we charge between 1%-3% for a 30 day advance.

A couple of common scenarios in the tech industry:

1) You're a web/mobile agency who gets paid on 30 day terms but you need to pay your staff (and contractors) on a monthly basis. If the times line up exactly you might get away with it but if your customer pays late you end up not being able to make payroll. Being able to get the money instantly as soon as you've issued the invoice is a huge peace of mind.

2) You're a software company which sells licences/subscriptions on a monthly basis. If you get that money up-front it means you can redeploy that money straight into marketing which when you're on an exponential growth curve makes a huge difference and is a vastly cheaper form of financing than venture capital (in this scenario we can actually advance up-to twelve months of subscription fees upfront).

3) You have to pay tax based on the amount of money you've invoiced for, not the amount you received to date, so you can easily get a tax bill for which you won't have the money for until your customer pays you. But the taxman won't generally be willing to wait so you have to finance it somehow.

To get an idea of how big a market this is, last year in the UK alone (where we're based) invoice finance was a ~100 billion pound market. A meaningful percentage of global GDP is dependant on this kind of advance.

In terms of cost most companies just build it into their pricing, it's often easier for these businesses to charge their customers more money than it is to convince their customers to pay faster (these are typically large corporates who can spend more but can't stop internal bureaucracy).

ci5erOP9y ago

> 3) You have to pay tax based on the amount of money you've invoiced for, not the amount you received to date, so you can easily get a tax bill for which you won't have the money for until your customer pays you. But the taxman won't generally be willing to wait so you have to finance it somehow.

I was just re-reading this, and this doesn't sound quite right. Is this a cash-basis accounting vs. an accrual accounting thing?

ig19y ago

It'll vary by country but in the UK sales tax (VAT) is generally paid based on the invoice date:

https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-...

You can do cash-based accounting and pay only when you receive the payment but this is only available to small companies (<1.35m revenue) and with some other restrictions:

https://www.gov.uk/vat-cash-accounting-scheme/eligibility

ci5erOP9y ago

Thanks! I love this kind of market-specific knowledge.

j / k navigate · click thread line to collapse

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ig19y ago

I work for a peer-to-peer factoring marketplace startup (http://marketinvoice.com) so I can shed some more light on it. Typically we charge between 1%-3% for a 30 day advance.

A couple of common scenarios in the tech industry:

ci5erOP9y ago

I was just re-reading this, and this doesn't sound quite right. Is this a cash-basis accounting vs. an accrual accounting thing?

ig19y ago

It'll vary by country but in the UK sales tax (VAT) is generally paid based on the invoice date:

https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-...

You can do cash-based accounting and pay only when you receive the payment but this is only available to small companies (<1.35m revenue) and with some other restrictions:

https://www.gov.uk/vat-cash-accounting-scheme/eligibility

ci5erOP9y ago

Thanks! I love this kind of market-specific knowledge.

j / k navigate · click thread line to collapse