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How SaaS companies are getting paid upfront for multiyear subscriptions while customers pay monthly.



From early growth stage to enterprise, I’m seeing more software companies roll out 0% interest financing programs for their annual and multiyear subscriptions. Here’s how it works. 


How to calculate a customer’s monthly payment: Total Contract Value (TCV) / # Of Months On Contract = Customer’s Monthly Payment 


Example: $60,000 Annual Contract Value

1-Year Contract: $60,000 TCV / 12 Months = $5,000 Monthly Payment

2-Year Contract: $120,000 TCV / 24 Months = $5,000 Monthly Payment

3-Year Contract: $180,000 TCV / 36 Months = $5,000 Monthly Payment


The customer incurs no additional cost for their monthly payments when they finance an annual subscription with 0% interest. But lenders don’t give out money for free, so who is paying the interest? 


The company providing the software. 



Why would they do that? 


1️⃣ Create a more competitive offer by giving their customer 1 monthly payment with no upfront cost.

2️⃣ Lenders pay them upfront for all the years on the contract plus implementation and services.

3️⃣ Offload their A/R & collections risk for future payments. 


To streamline rates and align them with how most software companies discount, some financing partners package the interest into a flat discount % deducted from the Total Contract Value when they fund the vendor. Currently, those rates are generally a flat 12% - 18% depending on the contract length. Vendors view these financing discounts like their standard sales discounts. 


How to calculate the amount the lender pays the vendor upfront: Total Contract Value (TCV) – Lending Discount % = Amount Vendor Paid Upfront 


Example: $60,000 Annual Contract Value

1-Year Contract: $60,000 TCV – 12% = $52,800 Paid Upfront

2-Year Contract: $120,000 TCV – 15% = $102,000 Paid Upfront

3-Year Contract: $180,000 TCV – 18% = $147,600 Paid Upfront


To bring it all together for a 3-year subscription contract with a $60,000 ACV:

 Customer: $5,000 Monthly Payment

 Vendor: $147,600 Paid Upfront



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