They put this change into their terms of service, and were quite evasive about it. Here's the notice of the change in the terms: "Schedule 2 (Accounts Receivable Service): We updated Section 1, Agent of the Payee; Receipt of Funds; Section 7, Expedited Payment Services Including Instant Transfer; and Section 8, Vendor Direct Service."[1]
Here are the old terms.[2] And the new terms.[3] The big changes are in the "Agent of the Payee" section.
Old text:
When You use the Accounts Receivable Service to originate ACH debits to Your Customer’s account or when You use Real Time Payments, You appoint Bill.com to act as Your agent in connection with the receipt of funds from Your Customer. Receipt of funds from Your Customer by Bill.com will be deemed to be receipt of funds by You, and will satisfy any payment obligations of Your Customer even if payment is not received by You.
New text:
When You use the Accounts Receivable Service, You appoint Bill.com to act as Your agent in connection with the receipt of funds from Your Customer. Receipt of funds from Your Customer by Bill.com will be deemed to be receipt of funds by You, and will satisfy any payment obligations of Your Customer even where You have elected to receive the payment from Your Customer through Our expedited payment services or are enabled to receive Vendor Direct payments or are enabled for a Bill.com Balance (collectively “Vendor Payment Methods”). When at least one of these Vendor Payment Methods is elected or enabled, You authorize Bill.com to designate a Bill.com account held for the benefit of Our customers as Your primary receiving account for receipt of funds for all payments or transfers made from Your Customers to You. The Bill.com account will serve as Your Bill.com primary and default account for receipt of the funds from Your Customers. All other bank accounts that You may have added to Your Bill.com profile as Payment Accounts will be secondary to the Bill.com primary account.
Note the new text:
You authorize Bill.com to designate a Bill.com account held for the benefit of Our customers as Your primary receiving account for receipt of funds for all payments or transfers made from Your Customers to You.
At this point, if you're a Bill.com customer, you need legal advice.
Questions to ask as a customer:
- Where is this Bill.com account held?
- Are you a creditor of Bill.com, or do you have a fiduciary relationship with Bill.com and actually own the funds in a shared bank account elsewhere?
- Does FDIC coverage extend to said shared account? (See this FDIC document.[3])
Here are Bill.com's financial statements filed with the SEC.[5] They're losing money at a rather high rate, $80 million in Q4 2021. Revenue and losses both increased substantially in the last year. They're already a public company, so the funding round phase is over. Their biggest expense is "Sales and Marketing", also about $80 million per quarter, which is how they manage to lose money in what ought to be a highly profitable business.
Their biggest asset is $3 billion in "funds held for customers", which, if they show that on their balance sheet, is not the property of the customer. It's money they owe their customers. They're acting as a bank.
Uh oh.
If you have substantial funds in Bill.com, having an accountant and a lawyer look really hard at those documents might be a good idea.
> Their biggest asset is $3 billion in "funds held for customers", which, if they show that on their balance sheet, is not the property of the customer. It's money they owe their customers. They're acting as a bank.
If they're showing those funds as an asset and not a liability, that's a not a good thing. They're claiming ownership of those funds... Personally I'd run away as fast as possible.
This comment (and Animats's parent comment) shows a fundamental misunderstanding of how a balance sheet works. Balance sheets balance: the funds are an asset, but there is a symmetrical liability due back to the customer.
It's a good thing, not a bad thing, that they have a separate line item on their balance sheet for funds held for customers. It means that they are not aggregating customer funds with the company's own cash.
Also, there is a precisely equal line item on the liabilities side showing "customer fund deposits". This is exactly what you would want to see if they were accounting for things properly.
This is not an attempt by the company to misappropriate customer funds. Bill.com is a money transmitter, and as such they are obligated to hold their customer funds in trust. This is one of the things that the state banking regulators that regulate money transmitters look at closely when they conduct periodic on-site examinations. If they tried to misappropriate customer funds, it would be detected within the year and they would be shut down.
Bill.com isn't acting as a bank here, but is instead switching over to a standard practice followed by money transmitters such as PayPal and Cashapp, etc., which is to maintain customer funds in their own trust accounts on their own balance sheets, and only forward those funds onwards to third-party banks when explicitly requested to do so by their customers.
Why would Bill.com do this? It's because interest rates are going up, and 3% annual interest on $3.3 billion is $100 million. If they can hold this money on their own balance sheet (and most likely invest it in US treasuries), then they can improve their profitability. By forwarding cash immediately to third-party banks, they had previously been leaving a lot of money on the table.
For what its worth, money transmitter regulations do place restrictions on how entities are permitted to invest customer funds held in trust. They can keep that money in bank accounts, but they can also invest those funds in US treasuries; the permitted investments are explicitly enumerated in the regulations. Again, this is one of the things that banking regulators look at closely when examining companies like this.
Is it a good thing that Bill.com did this, from their customers' perspective? Probably not. To the extent that their customers' might have earned interest on these funds had they been deposited into their bank accounts sooner, Bill.com is depriving their customers of interest income. As the company's email admits, customers should have been informed of this change well in advance of when it was to occur, to be given the chance to switch providers if they didn't like the new terms.
That being said, no one here is stealing anybody's money, and most likely no laws are being broken (unless they broke the law by delaying notification).
That's possible. Bill.com is licensed as a money transmitter in California.[1]
The funds are supposed to be in a trust account, with Bill.com acting as a fiduciary. It's important to be sure that's actually the case. This really matters if Bill.com goes bankrupt. If the funds are in a trust account, you get them back, reasonably quickly. Otherwise...
But see [2], regarding the "Agent of a payee exception to California money transmitter law". "The question of whether the agent-of-a-payee exemption applies is of considerable importance for any platform involved in facilitating payments ─ including consumer marketplace platforms, billing services, payment facilitators and other payment processors, and business-to-business (B2B) payments platforms." Money transmitters are regulated primarily for consumer protection purposes. Businesses are expected to take measures to protect themselves.
Large customers of Bill.com really need to nail down exactly who owns that money.
> The funds are supposed to be in a trust account, with Bill.com acting as a fiduciary. It's important to be sure that's actually the case. This really matters if Bill.com goes bankrupt. If the funds are in a trust account, you get them back, reasonably quickly. Otherwise...
I'm not sure that the money needs to be held in a segregated "trust account" as such for it to be considered "money held in trust", if the money transmitter law explicitly specifies that the customer funds are funds held in trust.
> Money transmitters are regulated primarily for consumer protection purposes. Businesses are expected to take measures to protect themselves. Large customers of Bill.com really need to nail down exactly who owns that money.
This is really getting into the weeds with regards to how a bankruptcy court would handle a case like this, if Bill.com were ever to go bankrupt. I will agree with you that it does seem like an interesting question: If Bill.com is acting as an agent-of-a-payee on behalf of one of its customers, and is therefore somehow exempted from CA money transmitter law for purposes of licensing and regulation vis-a-vis that particular customer, does that also mean that such a customer's funds should not be considered "funds held in trust" for purposes of bankruptcy?
I very much doubt that any court will ever get the chance to rule on this question, however, because Bill.com is licensed as a money transmitter and doesn't seem to be attempting to avail itself of the agent-of-a-payee exemption. It would have to be a creditor of Bill.com arguing to the court that in spite of Bill.com's status as a money transmitter, particular customers' accounts should be exempted from money transmitter laws, and that those particular customers should be treated as ordinary unsecured creditors. It would be such a travesty of justice for that to happen, I cannot imagine that any judge would agree to such a thing. Besides, the DFI would shut Bill.com down before they ever got close to bankruptcy, and there really is no reason to think that Bill.com will ever go bankrupt.
This is really getting into the weeds with regards to how a bankruptcy court would handle a case like this.
Agreed. Still, one of the early posters here mentioned having an amount in high six figures in a Bill.com account. At that level, you want such issues nailed down.
There really is no reason to think that Bill.com will ever go bankrupt.
Their financial statements indicate they're operating as a "buy growth or die" startup, even after going public. They spend a huge amount on marketing. Marketing is more than twice cost of sales. They still lose huge amounts of money. They're taking on debt. Sometimes that works, as it did for Amazon. Sometimes it doesn't. Some analysts are worried.[1]
> It's a good thing, not a bad thing, that they have a separate line item on their balance sheet for funds held for customers.
That is not what Animats was saying. They were talking about that showing up on a balance sheet at all, not whether it is separate vs combined with something else.
If they are holding onto customer funds, then you definitely want it to show up on the balance sheet.
Are you saying they shouldn't be holding onto customer funds at all? If you disagree with their doing this on a moral or ethical level, then that is your prerogative, but they don't seem to be doing anything unusual or untoward.
Maybe. I wouldn't know for certain, because I am not a lawyer. But my understanding from working in this industry for a number of years is that under most state money transmitter laws customer funds are held in trust, meaning that in bankruptcy they are not actually company assets that can be assigned to debtors. Customers would have to be paid first.
In addition, it is very unlikely that the company would be allowed to go into bankruptcy. Right now, the company has ~$1 billion in cash of its own, net of debt, above and beyond customer funds. They can afford to take some losses as they continue to grow. Arguably, they should spend this capital on growth. Isn't this why they raised the money in the first place? Isn't it what their investors expect?
If their cash reserves diminish to the point where they cannot sustain or justify those losses, banking regulators will shut them down before dipping into customer funds even becomes a temptation.
Bill payment companies have existed for decades under this same regulatory scheme. Interest on float is an essential aspect of bill payment companies' profitability; for some companies, it exceeds their fee income. There is nothing that Bill.com is doing here that is not standard for the industry, and regulators know what to look for (after being burned in the past). If Bill.com went south in the way that you seem to be worried about, it would be a major scandal.
Here are the old terms.[2] And the new terms.[3] The big changes are in the "Agent of the Payee" section.
Old text:
When You use the Accounts Receivable Service to originate ACH debits to Your Customer’s account or when You use Real Time Payments, You appoint Bill.com to act as Your agent in connection with the receipt of funds from Your Customer. Receipt of funds from Your Customer by Bill.com will be deemed to be receipt of funds by You, and will satisfy any payment obligations of Your Customer even if payment is not received by You.
New text:
When You use the Accounts Receivable Service, You appoint Bill.com to act as Your agent in connection with the receipt of funds from Your Customer. Receipt of funds from Your Customer by Bill.com will be deemed to be receipt of funds by You, and will satisfy any payment obligations of Your Customer even where You have elected to receive the payment from Your Customer through Our expedited payment services or are enabled to receive Vendor Direct payments or are enabled for a Bill.com Balance (collectively “Vendor Payment Methods”). When at least one of these Vendor Payment Methods is elected or enabled, You authorize Bill.com to designate a Bill.com account held for the benefit of Our customers as Your primary receiving account for receipt of funds for all payments or transfers made from Your Customers to You. The Bill.com account will serve as Your Bill.com primary and default account for receipt of the funds from Your Customers. All other bank accounts that You may have added to Your Bill.com profile as Payment Accounts will be secondary to the Bill.com primary account.
Note the new text:
You authorize Bill.com to designate a Bill.com account held for the benefit of Our customers as Your primary receiving account for receipt of funds for all payments or transfers made from Your Customers to You.
At this point, if you're a Bill.com customer, you need legal advice.
Questions to ask as a customer:
- Where is this Bill.com account held?
- Are you a creditor of Bill.com, or do you have a fiduciary relationship with Bill.com and actually own the funds in a shared bank account elsewhere?
- Does FDIC coverage extend to said shared account? (See this FDIC document.[3])
Here are Bill.com's financial statements filed with the SEC.[5] They're losing money at a rather high rate, $80 million in Q4 2021. Revenue and losses both increased substantially in the last year. They're already a public company, so the funding round phase is over. Their biggest expense is "Sales and Marketing", also about $80 million per quarter, which is how they manage to lose money in what ought to be a highly profitable business.
Their biggest asset is $3 billion in "funds held for customers", which, if they show that on their balance sheet, is not the property of the customer. It's money they owe their customers. They're acting as a bank.
Uh oh.
If you have substantial funds in Bill.com, having an accountant and a lawyer look really hard at those documents might be a good idea.
[1] https://help.bill.com/hc/en-us/articles/4422858850701-Update...
[2] https://web.archive.org/web/20211110201725/https://www.bill....
[3] https://www.bill.com/legal/terms-of-service
[4] https://www.fdic.gov/deposit/diguidebankers/documents/fiduci...
[5] https://www.sec.gov/edgar/search/#/category=form-cat1&ciks=0...