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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

#71

Post by hn_throwaway_99 »

blindriver wrote: post #16
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…

> 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 regs.

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

#72

Post by dylan604 »

blindriver wrote: post #16
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…

> 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 fails to pay the last 25%. These were the types of jobs that could easily last 6-12 months. Lots of people had mixed feelings about this, but at least it wasn't paying for office renovations or the owner's car payments, etc.

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

#73

Post by Spooky23 »

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…

It’s not that, it’s a revenue recognition issue. And there are lots of tricks around it.

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

#75

Post by theshrike79 »

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…

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

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

#76

Post by andrewmcwatters »

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…

I just ignore anyone who doesn't actually own a business or administrate compliance on HN, because half the people here don't know what they're talking about with basic technologies, let alone law or finance.

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

#77

Post by Havoc »

Waterluvian wrote: post #64
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.

I don't really get this logic. Why don't they count it as revenue the moment the credits are issued? Or is this more just a "this is a convenient free win as a consequence of how we decide to manage our books."

> Why don't they count it as revenue the moment the credits are issued?

Because the corresponding service hasn't been rendered yet. Conceptually you want the revenue and the costs to generate it recognised at roughly same time else your P/L number is volatile/meaningless

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

#78

Post by Spooky23 »

senko wrote: post #65
bpavuk wrote: post #57

Earlier quoted context omitted.

unlike Anthropic, iTunes and Starbucks are profitable. suppose iTunes gets $1 from every $5 spent there. if Apple sold a $50 gift card, it can pocket $10 and not worry about it. Anthropic, OTOH, sells their API at loss , so unused credits mean losses that await to be materialized. it is unprofitable for them to let you keep the compute bucks forever.

> Anthropic, OTOH, sells their API at loss, Sources? It is widely believed that their fixed-price plans lose money, but last I heard API (price per token) had positive margins?

Maybe in some universe. Companies like this grow so fast you have no idea, and any prognostication about making money is just frankly bullshit.

Growth hides all sins, as long as the investors keep ponying up.

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

#79

Post by [deleted] »

ManlyBread wrote: post #49
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.

How come this never happens to video game companies that give out various in-game currencies?

[deleted]

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

#80

Post by tart-lemonade »

ksec wrote: post #55
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.

What about Starbucks top up card or Apple iTunes Credit? How would those work?

Retailers have historical data on gift card redemptions and, using this data, can recognize portions of the unspent value of the gift cards as revenue when that portion is unlikely to be redeemed.
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