The no accounts receivable OSS model

Unfortunately for OSS vendors / integrators, their business models have a dependency (and major risk) on accounts receivable.

Investopedia states, “Accounts receivable are amounts of money owed by customers to another entity for goods or services delivered or used on credit but not yet paid for by clients.”

One of the earliest OSS projects I worked on was worth in excess of $30m for the vendor. It was a multi-year implementation. Two years in, they’d only received the initial mobilisation payment. With implementation costs blowing out, it was proving to be a major challenge for the company to continue operating.

The team had delivered a majority of the functionality written into the contract, as well as many other features negotiated in-flight. It was successfully being used in production, helping to deliver revenues to the customer. Unfortunately for the vendor, there was some key functionality that was still a way off being delivered. That meant contractual objectives hadn’t all lined up for payments to occur.

The balance of financial power was definitely in the hands of the customer.

Whether it’s in a large, complex implementation or ongoing license fees, accounts receivable can be the bane of OSS vendors.

That’s why I try to establish a no accounts receivable model for OSS vendors. That means up-front payment, but as shown below, means up-front value also needs to be delivered. It’s one of the attractive aspects of cloud-delivery business models.

The project I mentioned above had a product suite that worked out of the box, but only delivered value after features, data, integrations and automations were custom built… over a period of years.

So a couple of questions for the OSS vendors out there:

  1. How to deliver value, not just functionality, early in a project and then ongoing through the product lifecycle?
  2. How to give the customer enough confidence that they’ll receive up-front (and recurring) value that they’re prepared to pay up-front (and recurring)?

Leave me a comment below if accounts receivable is a bane of your organisation’s existence or whether you’ve found a way to have less reliance on AR.

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