Does Barclays Bank hate tech startups? Or just small businesses in general?

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When tech startups get up and running one of things they need to work smoothly is cash flow. As the excellent presentation by William Reeve at GeeknRolla showed, cashflow can actually be an amazing weapon in your fight to create a business. But if the bank you are dealing with throttles your cashflow, how are you going to stay in business?

That’s at least the conclusion of BoxedIce, a new UK tech startup that’s developing a server monitoring application called Server Density.

When founder David Mytton rang up Barclaycard Business recently to set up a merchant account he found that they had recently instituted a blanket 45 day deferred payment policy. In other words you’d have to wait almost 2 months for the money to clear, while still supplying the customer with your product or service at a loss.

Here’s some excerpts from his detailed blog post on the matter:

…I have a long history with the bank and its group companies. When I contacted Barclaycard Business to go through the process of setting up the merchant account for Boxed Ice, I was expecting them to provide the best rates (they have in the past) and since I had been through the process before, I knew what to expect and how long it was going to take. But this time round, it seems they have introduced a new policy: 45 day deferred settlement for all software / internet companies. A blanket policy. No exceptions. No appeals*.

This means that when a customer pays you, you won’t get the money for 45 days. Barclays keep it. If a customer pays you on the 1st Jan, you have to wait until 14th Feb, plus another 3 days for the actual transfer to complete. And they won’t be paying you interest either.

…If you have to wait almost 2 months for customer payments to become available then that is 2 months you have to survive and supply the customer with the product or service at a loss.

Looking at it from Barclays’ point of view, selling intangible goods like downloadable software and SaaS may well be seen as a higher risk because the customer does not ever receive anything physical and you can’t point to a Royal Mail delivery signature to prove the product was delivered. However, that is actually a false risk. In our case, we bill the customer after their first month of usage. This is the same for a lot of other tech companies, especially in the case of free trials and usage based billing. The customer has already received the service and been using it for weeks before they are billed.

This means the customer might actually be using your product for almost 3 months before you get any money – 30 day free trial + 45 day settlement + 3 day transfer time.

With a physical product, if the customer wins any chargeback then the company has to get the product returned (which might not even be worth the expense if it’s a low value product) and there are losses on packaging and shipping. There’s no such risk with a software sale because there is no unit cost (ignoring hosting costs), just overheads.

… Barclays will be missing out on a lot of good business if they continue this policy. Maybe they have decided they don’t want to service the tech industry. That’s their choice, but it seems like a bad one to me. From what I can see, Barclays hates tech startups and wants to keep their money for as long as possible.

* I was told on the phone I could appeal the decision by contacting my local business account manager but after speaking to his Barclaycard Business contact, he said there was nothing he could do, regardless of my past history.

In an economy where banks are supposed to be making amends for contributing to the global economic collapse, it’s dissappointing that Barclays thinks it can behave in this way.

Perhaps it is too busy with creating its tax haven in Ghana to aid the siphoning of West Africa’s vast mineral wealth away from its people.

Feel free to add your suggestions for banks geared towards startups in the comments below.

  • David Cruickshank

    We are using HSBC ePayments with an HSBC merchant account and haven’t faced any major problems like this.

    If we had faced a policy like this it would probably be enough for us to have switched to another merchant account provider.

    • David M

      This came up with the research stages of looking at merchant accounts so whilst we still do our day-to-day business banking with Barclays, we went with Streamline for the actual merchant account.

      HSBC offered good rates but you have to be a customer of theirs for at least 12 months before they offer the merchant account services.

      I’m planning to write up details of the rates offered by all the banks in a later post.

  • Sean

    Mike, are you still on your Anti-Barclays crusade? What have they done to you? Refused you an o/d sometime? Raised your mortgage rate? Or was someone just impolite to you in a branch?

    Time to change the record and move on, mate! It’s getting a touch old.

  • Steve

    Sean – this is a very valid concern for people trying to find a merchant account for their business.

    Whats with your anti-mike crusade?

  • Evan

    The business manager at our bank (four letters, begins with H) recently asked us as majority shareholders to personally guarantee the value of our company’s sales which they process via their merchant services arm. He said the bank’s risk was reaching unacceptable levels.

    “That’s because our revenues are increasing,” we said. “So you’re processing more charges. That’s a good thing, right?”

    “Oh,” they said, “but that increases the likelihood of chargebacks.”

    “We’ve never had a chargeback in our life,” we replied.

    “But if you ever go under,” he said, “we would be responsible for all the chargebacks.”

    I told him that I’d think about it. And I did think about it. I thought about how stupid it was. Then he got transferred to another branch. If they remember to ask again, I’ll think about it some more.


  • Phillip Hofmeyr

    Hi Mike – Last week I compiled a list that compared UK business bank accounts. I collected the comments from the members of the London OpenCoffee mailing list who were responding to someone asking for help. Some of your readers might find this a useful starting point before picking a bank.

  • Sam

    Yeah i’ve had the one where the bank tries to get me to sign a personal guarantee for £60K on a loan of £40k – i told them to get lost! Still managed to get the loan out of them, but it was about 1 week before the banking collapse, don’t think i would be so lucky today.

  • Chris Padfield

    >> There’s no such risk with a software sale because there is no unit cost (ignoring hosting costs), just overheads.

    – Which is perhaps why they feel they can get away with this policy.

  • Simon Deane-Johns

    Definitely a pain, and one worth raising with the authorities on a regulatory and/or policy basis, which I realise is time-consuming. Alternatives might be factoring/discounting the receivables (we looked at doing this in a competitive way for small volume trade debtors at Zopa, see also or selling on a third party merchant platform where the whole retail experience is handled and payment is just ancillary.

  • Scott Purdie

    Its nothing short of a total farce. If nobody has already done so, it should be forwarded on to the Government to see what their view is.

    How can startups build the country out of a recession with policies like this.

    It becomes a real pain in the ass when the other banks follow suit, here’s hoping they dont.

    Credit to publishing this Mike.

  • John Grimes

    I reckon that the banking sector has got to be ripe for a wave of new banks to rise that are targeting niches like this one and providing a radically different level of service to what we are used to.

  • rob mathieson

    What a joke. Reminds me of the ebay/paypal policy of sitting on peoples money for ten days.

    Surely this is illegal? There is a reason why bank transfers have been reduced from 3 days, as the government decided that banks were sitting on money much longer than they had to!

    Its an absolute disgrace.

  • Simon Deane-Johns

    @rob mathieson – bank transfers are different from paying over the proceeds of card transactions that may attract chargebacks – also a reason for the eBay/PayPal policy you mention. It’s the blanket nature of the 45 day deferred payment policy that seems to be in issue.

  • http://www.twitter/albertonardelli Alberto

    Interesting article in business week today relevant to banks taking similar action in the US and its impact on entrepreneurs:

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  • Jon

    Tried Barclays ourselves i can only presume their pricing policy is deliberate. They simply cannot want start ups. I think it is an active policy created to put off start ups. Why else would they do this..?

  • Dan

    Barclays hates small business. I’ve an anecdotal history of branches offering poor service to sole traders- especially those wishing to trade online, plus being inflexible with overdrafts and charges.

    Bricks and mortar banks don’t offer the best online payment processing deals and service. Worldpay used to be good and I’ve heard good things about Protx recently. Always negotiate their fees.

    • Jon

      Dan, agree have used Protx ourselves, they are easy to deal with, you can speak quickly for help, lower fees , better than Barclays by a long chalk. The only issue is the Protx brand which is not as well known…when used on site

      • David M

        Protx are just a payment processor, they don’t do merchant accounts which you have to have before you can sign up with them.

        (They do now offer this as a partner with BoS but that’s just regular BoS, not Protx).

  • Simon Hill

    Woah. I’m no Barclays fan, but something for the lynch mob…

    Firstly, this issue is with Barclays Merchant Services, not Barclays business banking. Barclays business banking tries hard to attract and encourage start-ups; they regularly sponsor/send out-of-touch fogies to start-up events and successfully bore the shit out of everyone there. (Bless them.) It’s doubtful they’d do this if they “hate tech startups”.

    Regarding Barclays Merchant Services, yes, they’ll make you wait for your money, but I found that all the banks were pretty similar. Tech startups doing SaaS are in fact a huge risk, because what happens if the start-up goes out of business when 5,000 customers have paid for a year subscription by credit card in advance?

    So, before singling out one company, are any stats available on the other payment processing companies?

    • Jon

      it’s good to carry out a good public lynching occasionally helps with innovation from large corporates….

    • David M

      None of the other banks have the deferred settlement policy.

    • Duncan Malcolm

      I’ve found that while banks are very apprehensive of Annual billing models they are more than happy to look at either monthly or post service billing.

      While this means that you’re exposed as a SAAS or web product supplier for up to a month it does mean that because you’ve already delivered the service the question of chargebacks is highly unlikely and relatively undefendable.

      That said if you buy anything on CC or buy direct debit my understanding is that you can have the entire amount that any company has charged you going back quite a long time without too much difficulty..

  • Alex Bainbridge

    We use Barclaycard for our SaaS offering. No problems with them holding our money for a while. They answer the phone and always seem to know the answer.

    In the industry I work in (travel) its pretty difficult for travel companies to even get a merchant account when starting up. When I say difficult I mean damm near impossible. This forces them to PayPal / Moneybookers etc who have their own risk procedures that cause fun and games.

    The discussion therefore shouldn’t be around immediate payment vs 45 days – but around the rules and regulations you have to comply with to get a merchant account in the first place.

    I know cashflow is important (and yeah, I know that, really) but being paid 45 days vs being paid in a few days…. really…. if you have steady growth – that isn’t much of a problem. If your business is so unstable that this is life or death… well – there are other problems not made by Barclaycard.

    Besides, 45 days is negotiatable after a good trading period. Just seems they are running a sensible business to me.

    • David M

      True, but what happens if you have 10k signups in a month and have to fund the accounts for 45 days without the revenue they’re supposed to be generating? This is obviously an extreme example but it depends on the business – if you have large downloads or do video streaming then the costs begin to mount.

  • Engago team

    PayPal merchant:
    – No set-up costs
    – No monthly fees
    – Commission on transactions in line with others
    More reasons:

  • Chris Padfield

    PayPal are fine, but do check out their FX rates if you are a UK company pricing in $US. For me it worked out significantly more expensive than Barclays Merchant Services.

    That, and from my experience in offering both options – 90% to 95% pick normal credit cards and not PayPal; so there is clear customer preference for not using PayPal (this is a B2B business).

  • Russell

    This is not new news. Bank have been doing such things for years. As a start up its horribly difficult to set up a merchant account.
    It’s even more difficult if the business are charging for a service up front that they intend to deliver over a period of time. Banks just won’t take the risk on start up’s.

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  • Engago team

    @Chris Padfield: PayPal has a Merchant system too (no the email system) thus suited for B2B.
    It is a credit/debit card processing like any other, except no setup costs no monthly fees.

  • David M
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