How to Get Customers to Pay Their Bills

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In the early years, Bloomberg LP faced a challenge common to new businesses: how to get customers to pay their bills on time.

Most clients paid on schedule, of course, but not everyone. And as the firm grew, the accounting team found it was spending more and more time tracking down the late payers. 

One reason some big customers may have delayed was because they were sophisticated financial firms and keenly aware they could benefit from the “float,” i.e. investing the money. 

There was also the fact that the bills were paid by the back-office accountants, who had an incentive to keep costs down, not the front-line users of Bloomberg terminals – the traders and portfolio managers who used the system.

At some point it became clear that something had to give. Either Bloomberg had to hire a much larger accounting team to chase the open invoices, or some other solution had to be found. 

One of the management traits that is underappreciated about Mike Bloomberg and which I think explains a lot of his company’s success is his willingness to consider unconventional solutions to everyday problems. 

He particularly favors ideas that leverage social gravity rather than adding headcount. 

In this case, he pressed some of the senior people at the firm: “What would we do if we couldn’t add people? How would we solve this?”

The answer he came up with was to turn off clients who didn’t pay on time. 

It’s the way the telephone company would respond. But most software companies are reluctant to do that. They don’t want to see subscribers drop or cause friction with clients. 

Bloomberg started alerting terminal users who were behind on payments that the service would be shut off on a certain day. 

“That instantly changed the dynamic,” according to Jeff Cohen, who ran Bloomberg sales for the Americas during the 1990s. 

It became clear that by alerting the traders and portfolio managers that the service was about to be turned off, Mike enlisted them as allies to pressure their companies’ accounts payable departments. 

“What Mike did was rally the users to be on his side and go back to procurement,” said Cohen. “They realized you can delay with other invoices, but not Bloomberg. It was a bold move.” 

Some exceptions were made in cases of hardship, said Cohen. 

Bloomberg must have realized that many traders couldn’t operate without the terminal. 

Many companies are reluctant to take the risk that their service isn’t essential. 

One of the most basic goals of any business is to secure “product market fit.” 

One way to know if you have it, is to turn off non-paying customers and see what happens. 

(Part of a series of lessons I learned from three decades working at Bloomberg LP)

BRIEF OBSERVATIONS

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