

Ask HN: Why Net 30? Why not pay immediately? - bazookaBen

Why do companies do Net 30, 15, etc?<p>i'm planning to start a service which pays users money for submitting content.<p>is it legally possible to do a payout immediately upon a successful submission?
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dalke
EDIT: Oops! I read your post the other way. You want to pay immediately,
rather than net-15 or longer, rather than get paid immediately. Still, most of
the below applies.

Sure, it's legally possible. Do you want them to have a stack of cash for you
when you're done? Then make that be a requirement in the contract. I'm not
sure how you would enforce it - charging a penalty for late payment makes the
most sense.

But most companies don't have that much cash on hand without preparation, and
keeping a lot of money around for all of the vendor payments sounds very
risky. Most people would feel safer paying by check or wire transfer. Of
course, that might take a few days if you get paid on a bank holiday

What if the person you've been working with is sick that day - who can confirm
that the payment is authorized for that day? What if your invoice arrives at
the end of the day just before everyone takes a week off for Christmas? Or on
the day of the company picnic, or there was a blackout.

Basically I'm saying that expecting to be paid on the same day is
organizationally difficult for the general case, and therefore unreasonable.
Net-15 is reasonable, although if there's only one person handling accounts
then it becomes a bit trickier taking two weeks off for holiday. Net-30 has
been standard in my experience and it's what I charge. I've had one client do
net-60. That was a right nuisance.

~~~
bazookaBen
i'm wondering if for the content submitters, it gives them added motivation to
get paid as soon as their content gets verified.

~~~
dalke
Probably. But then there's the onus on you to do so. What if the payment
software breaks while you're on holiday for a few days?

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bks
I dont't think that there is anything illegal about paying for services
rendered at the time of delivery. Nor is there anything wrong with pre or post
paying.

As mentioned below a reason to have a gap between deliver and payment is
typically

1) to manage cashflow 2) to inspect good and services 3) the buyer is the
middle man or the service is part of a larger project that needs to be
fulfilled before the person gets paid. (This can be part of 1.) 4) To use the
cash, leverage on something else and wait to pay vendors - this period is
called the float. It is essentially an interest free loan that the vendor
makes to the supplier.

You could use an escrow service for payments by essentially moving the money
from an active cash account to a holding account or 3rd party holding account
that releases to the vendor.

But in the long run, hold onto cash until you have inspected and approved and
then pay immediately.

My typical terms are 10 days and I get paid in 17.

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mcnees287
Some firms may have lumpy cashflows and are unable to put up all of the cash
at one time for a purchase or they simply just may not wish to part with
current cash holdings.

Often if a firm is willing (able) to pay upfront in cash they will receive a
discount such as being required to pay only 0.8x, for example. The key point
is that the true cost of the goods is in fact 0.8x. while x is the financed
cost.

Net 30,15 and so on is a form of financing the purchase to the purchasing
company. The rate that one must pay to get the goods today and pay in thirty
or fifteen days should be compared to other forms of financing. A firm should
consult a bank for instance to determine if they can finance the purchase at a
lower rate.

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Geee
If your customers pay you X amount in advance and you hold that money for 30
days, you are X amount richer all the time. Imagine running a business with
$10 billion in revenue but without profit and that starts to make sense.
Typically, companies try to pay their bills as late as possible. I think
there's also some 'professional' term for this type of cash handling, which I
don't know. So, you can pay them immediately, but you'll have to operate with
less money in your bank account.

~~~
murtza
I think accounts payable is the term you were looking for.

Here's a link to Wikipedia for the term:
<http://en.wikipedia.org/wiki/Accounts_payable>

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gexla
This is essentially what Amazon Mechanical Turk does. You do an action and the
payment for that action is available as soon as it's approved (usually
anywhere from less than an hour to a day.) However, I believe you can only
pull out your earnings after reaching a $10 minimum.

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trailcable
Administrative overhead and float are 2 off the top of my head.

Automation makes the first one easier, but unless it's all automated it may
still be a headache. Having to send out disbursements once a month is a lot
less overhead.

~~~
nmcfarl
In my business float is the big one - we pay our contractors at completion of
work, which means if our clients pay us when they receive the goods, we’ve got
to come up with the money to pay the workers before we’d gotten paid. This can
get quite painful quickly, and meant in the early days we’d have to turn down
large orders because we didn’t have enough float to pay the workers.

------
paulhauggis
Are you filtering your content before giving them cash? What if it's complete
garbage/copied.

~~~
bazookaBen
verification comes before payout

------
bmelton
There are a lot of good answers in here, but to compile them and maybe add
some:

1) The time between payments gives you the ability to verify that the service
has been done correctly and isn't in any way fraudulent. Adwords is a great
example, they hang on to the cash for as long as they can because once they
pay you, they can't take the money back.

2) Immediate payment, even if automated, doesn't give any opportunity to
double-check things. If you're dealing with $10 items, maybe that isn't a huge
deal. But what if your task queue goes crazy and redistributes tasks over and
over, and now you've just paid somebody $10 every minute the heartbeat pulsed
and now you've paid them $20,000.

3) Processing deductions. The more you can charge on a single transaction, the
better of it is. If you're making many small transactions and are losing 30
cents + 2.9% on each one, that's 33% you're losing on a one dollar process.
Obviously, higher amounts negate this, and Net-30 terms help to negate that
even more.

4) I assume you're talking digital processing, otherwise, I do not want to be
the guy that has to cash 30 checks when I could have only had to cash 1.

5) The most important, possibly, is interest. The longer you can keep the
funds in your account, the more interest it draws. I once worked for a
restaurant that paid well, but had pretty thin margins due to competition.
They always paid on time, but very politely asked that you waited until noon
the next day to cash your paycheck, as interest calculations 'ticked' every
day at noon at the bank they used, and while it doesn't sound like a ton, the
interest on the paychecks of a 30-person staff adds up pretty quick, and every
penny counts.

6) Lastly, if you have to track these payments for tax purposes, the less
payments you make the better. Rolling in everyone's accruals into one 'lump
sum' for payment could easily be the difference between filing monthly taxes
in a couple of hours vs. having to take days to file.

