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Tell HN: Anthropic expires paid credits after a year

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Re: Tell HN: Anthropic expires paid credits after a year

#131

Post by lelanthran »

graemep wrote: post #128
lelanthran wrote: post #119

Earlier quoted context omitted.

> If the contract states the credits expire EOY all bets are off. Implicitly makes the credits the 'delivery' not the service itself. I wasn't addressing what the contract states and what the effect is; I was addressing the accounting rule for service sold but not yet delivered. As long as the credits are usable (i.e. not expired), those credits are a liability on the books and financial statements must reflect that.…

The argument hing made is that the credits are what is being delivered. It may or may not be correct, but it is not obvious to me that the revenue should be recognised when the credits are used or expire rather than when they are sold. its probably defined somewhere in the rules (I assume US GAAP in this case?)

> The argument hing made is that the credits are what is being delivered.

Right, I understand that.

> but it is not obvious to me that the revenue should be recognised when the credits are used or expire rather than when they are sold.

The realisation (or recognition, if you want) of the revenue is irrelevant. Once you have already accepted payment for a service, that service is a liability until you deliver it.

So, unless they are cooking their books to say that they are not obligated to provide the service after accepting payment, I don't really see how they can report it on their statements as anything other than a liability.

Re: Tell HN: Anthropic expires paid credits after a year

#132

Post by aflag »

backprop1989 wrote: post #6

Accounting rules. If the credits last indefinitely, any unused credits cannot be counted as revenue. Ran into this at my last company when we signed a big contract and gave them hundreds of thousands of dollars in non-expiring credits. Our accountant went nuts when we told him.

They can't because they aren't, right? That's the whole point of having them not expiring. Until you used them, you can still get your money back in some situations.

Re: Tell HN: Anthropic expires paid credits after a year

#133

Post by otterley »

jacquesm wrote: post #115
otterley wrote: post #107

Earlier quoted context omitted.

That’s not how accounting works. There’s no such thing as a probabilistic liability.

Let me introduce you to actuarial science: https://en.wikipedia.org/wiki/Actuarial_science

I’m aware of actuarial science, but what does that have to do with accounting? (We've been talking about liabilities as an accounting and contractual term, not as a remedy for injuries.)

Re: Tell HN: Anthropic expires paid credits after a year

#134

Post by cutemonster »

dylan604 wrote: post #72
blindriver wrote: post #16

Earlier quoted context omitted.

> you need to put that money into a separate, third party’s account that shields it from bankruptcy This is wrong. You don’t need to do any of that. They paid for a service and it becomes a liability, but there’s no duty to segregate those funds. You do not turn into a money transfer agent just because you sell pre-paid credits to your service.

This reminds me of a company in town that was known for doing the precise thing of putting money into separate accounts, specifically, CDs. It was the type of service where 50% was paid up front, 25% at specified milestone, remaining 25% at completion. So the company would receive the 50% and place a large chunk of that into a CD. There were lots of reasons , but my favorite was the excuse of it covers when someone f…

> covers when someone fails to pay the last 25%

Could it have been that they could use that "reserved" money to pay people's salaries, if the client stopped paying? Then in a way it would have covered? although badly phrased maybe

Re: Tell HN: Anthropic expires paid credits after a year

#135

Post by beaugunderson »

theshrike79 wrote: post #75
stingraycharles wrote: post #7

Earlier quoted context omitted.

Correct, then you effectively become a holder of someone else’s money, which creates all kinds of legal trouble (you need to put that money into a separate, third party’s account that shields it from bankruptcy etc). What they could do is automatically refund the credits to the original account as soon as they expire, but that would mean it’s not the deposit but every API request that would be counted as revenue, whi…

Fun fact: Starbucks is holding 2 BILLION of people's money in the form of unused gift cards and pre-paid store credit: https://alltrades.substack.com/p/the-bank-of-starbucks

and luckily due to Washington state's consumer protection laws (https://app.leg.wa.gov/rcw/default.aspx?cite=19.240&full=tru...) they can't add an expiration or a monthly fee to draw those balances down to zero here.

would love if there was similar law for credit expiry.

Re: Tell HN: Anthropic expires paid credits after a year

#136

Post by bravesoul2 »

stingraycharles wrote: post #7
backprop1989 wrote: post #6

Accounting rules. If the credits last indefinitely, any unused credits cannot be counted as revenue. Ran into this at my last company when we signed a big contract and gave them hundreds of thousands of dollars in non-expiring credits. Our accountant went nuts when we told him.

Correct, then you effectively become a holder of someone else’s money, which creates all kinds of legal trouble (you need to put that money into a separate, third party’s account that shields it from bankruptcy etc). What they could do is automatically refund the credits to the original account as soon as they expire, but that would mean it’s not the deposit but every API request that would be counted as revenue, whi…

Every API request? Can't they just get an invoice at the end of each month to turn that to $ amount. Like a phone bill.

Re: Tell HN: Anthropic expires paid credits after a year

#137

Post by bravesoul2 »

hn_throwaway_99 wrote: post #71
blindriver wrote: post #16

Earlier quoted context omitted.

> you need to put that money into a separate, third party’s account that shields it from bankruptcy This is wrong. You don’t need to do any of that. They paid for a service and it becomes a liability, but there’s no duty to segregate those funds. You do not turn into a money transfer agent just because you sell pre-paid credits to your service.

Thank you. As someone who used to work for a health fintech, it was amazing how often you'd hear loads of confidently wrong opinions on stuff like HIPAA (no, saying that Lisa couldn't make the meeting because she's out with the flu doesn't make it a HIPAA violation) and money transferring/KYC/AML/etc. laws. Like you said, selling prepaid credits to your service doesn't mean you're covered by money transmitter service…

HN is short for hallucination? H11N maybe?

Re: Tell HN: Anthropic expires paid credits after a year

#138

Post by bravesoul2 »

renewiltord wrote: post #84
hn_throwaway_99 wrote: post #71

Earlier quoted context omitted.

Thank you. As someone who used to work for a health fintech, it was amazing how often you'd hear loads of confidently wrong opinions on stuff like HIPAA (no, saying that Lisa couldn't make the meeting because she's out with the flu doesn't make it a HIPAA violation) and money transferring/KYC/AML/etc. laws. Like you said, selling prepaid credits to your service doesn't mean you're covered by money transmitter service…

Did you know it's okay to give bad health information advice if you spell it HIPPA instead?

No. HIPPAs are the most dangerous animals in Africa.

Re: Tell HN: Anthropic expires paid credits after a year

#139

Post by foxglacier »

otterley wrote: post #107
foxglacier wrote: post #98

Earlier quoted context omitted.

They probably have a good model for what percentage of those will never be redeemed so they wouldn't have to count the whole $2 billion as a liability. The OP's one big customer would be harder to predict the future behavior of.

That’s not how accounting works. There’s no such thing as a probabilistic liability.

Yes there is. See provisions and contingent liabilities.

Re: Tell HN: Anthropic expires paid credits after a year

#140

Post by throwaway4496 »

Etheryte wrote: post #127
lubujackson wrote: post #97

Earlier quoted context omitted.

Makes sense. Just like how when you put money in the bank they have to put it in a big vault and not touch it so you can access it in the future. Oh wait... rules for thee and not for me.

Banks have very strict legal rules about minimum balance sheets. They don't have to have 100% coverage, but that doesn't mean it isn't there.

A fraction of it, it is called fractional reserve banking for a reason.
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