Don't send the true-up invoice

Here's a situation every software business has, whether it knows it or not. A customer signed for 200 users three years ago. 260 are logged in today. The contract says additional users are chargeable at list price.

Finance's instinct is clear: work out the excess, raise an invoice, maybe backdate it. It's money owed.

I'd ask you not to. Not because the customer doesn't owe it. Because the invoice is the smallest thing you can get out of that conversation.

What the invoice gets you

Say 60 extra users at £300 a year. That's £18,000 a year going forward, and maybe some arrears if the contract supports it. You'll probably get some of it. You'll also get a customer who feels caught out, an account manager who's now the bad guy, and a renewal conversation in 18 months that starts with a grievance.

What the conversation gets you

Excess usage tells you three useful things. The product is embedded. The customer is growing. And they've been getting value they haven't paid for, which they almost certainly know.

Put together, that's the strongest position you'll ever have going into a commercial conversation.

At a business I spent nine years in, we built a whole function on this. Excess usage was the trigger to engage, and what followed was upsell, cross-sell, and customers moving onto longer contracts on our current terms. That function grew from £1.2m a year in bookings to £26.9m. Very little of that came from invoices for overuse.

How the conversation goes

Show them their own data. Not an accusation. A usage report: here's what your contract covers, here's what your teams are using. Most customers are surprised by the size of the gap, not by the fact of it.

Offer a choice. One option is the true-up at the contractual rate. The other is a new agreement that covers where they actually are, with room to grow, at a better unit price, for a longer term. On the current terms and conditions, with an indexation clause that works.

Most customers take the second option. It's better value for them, it tidies up an awkward position, and it gives their procurement team a cleaner contract.

Trade the arrears. If the contract lets you backdate, that figure is your negotiating weight. You're willing to write it off in exchange for term, volume or terms. It's worth far more to you as a bargaining chip than as cash.

The maths

Compare the two outcomes on the 260-user example.

The invoice: £18,000 a year in additional revenue on the current contract, which renews on old terms and may not renew at all if the relationship sours.

The conversation: a new three-year agreement for 300 users at a slightly lower unit price, say £280, plus a £10,000 module they'd been meaning to look at. That's £94,000 a year against £78,000 on the invoice route, with 3% indexation applied each year.

Over three years that's roughly £290,000 against £234,000, assuming the old contract renews flat and nobody applies its uplift. About £56,000 more from one customer, and the agreement is on your current terms rather than ones written three years ago.

Same customer, same usage data, same week. Very different number.

When to just send the invoice

Sometimes the relationship is already over, the customer has given notice, or the contract is a small one where a conversation costs more than it returns. Fine. Bill it. But that should be a decision, made deal by deal, not the default.

What you need in place

Three things. Usage data you trust, at customer level, that you can put in front of them. A clear view of what each contract actually entitles them to. And account managers who know how to run the conversation and are paid when they do.

The third one is usually the hardest. Which is why I wrote about it separately.

Read how contract monetisation works, or start a conversation about your own book.