How do I improve cash collections?
Overview
Like monthly recurring revenue (MRR), cash flow is a key metric for measuring the health of a SaaS company. Having cash in the bank means having working capital to grow your business. SaaS companies charge recurring revenues in advance of the service period, so it is important to get paid as soon as possible, especially if services are already being provided and used by the customer.
Solution
To start, you'll want to define your rules and policies for handling late and non-paying accounts, and clearly communicate these rules to both your internal teams and your customers. In defining your collections process, you may want to consider:
- How frequently do you want to notify customers with late invoices before further action is taken? You may want to send out 30, 60, 90-day late notices with the 90-day notice being a final notice before an account is suspended.
- What methods will be used to notify customers of late payments? Email, phone, snail mail, text message, website pop-up messages are all options. Some customers prefer certain methods of communication (such as email) when notifying them of account issues. Emails, text, and pop-up messages can be perceived as less invasive than phone calls, but a phone call is often very effective as you're able to discuss and resolve issues live.
- If a customer has not paid by the final notice, will you suspend or deactivate their services?
- Are late fees or reinstatement fees applicable? If yes, you may want to consider communicating these fees in your legal agreements such as a master agreement or terms of use agreement.
With that in mind, here are five best practices to help you get paid faster!
Prevent Failed Payments Before They Happen
When a customer signs up for your service, they provide a payment method (for example, a credit card) for you to charge on a recurring basis. Over time, that credit card account can change (an account gets closed, the account number has changed, or an expiration date is updated). If changes to a credit card account are not immediately reflected in your records, it can result in failed payments when you attempt to charge the card. Failed payments lead to delinquent accounts so we recommend proactively ensuring credit cards are updated by:
- Using an account updater service provided by your payment gateway. The account updater can be configured to automatically request updates from the credit card networks a week before the next bill cycle day. Any updates available are immediately reflected in the customer’s account without further action from you. If a credit card number has changed, a new payment method with the new credit card number gets created in Zuora. If an expiration date has changed, the payment method is automatically updated.
- Use email notifications and callouts. Send one or more email notifications to your customers alerting them of credit cards that about to expire in 30 or 60 days (you define how far in advance to send these alerts). You can also send a call out to your provisioning system so that it displays a message in the customer’s account asking them to update their payment method or provide an alternative payment method.
Alert Customers of Failed Payments Immediately
Send emails and callouts to alert customers of failed payments immediately so they can provide alternative forms of payments. In your emails and/or call-outs, provide clear instructions to customers on how they can make a payment to bring their account current. Also, be consistent with your communications. If your customer does not respond to the first notice, you have the option of sending them follow-up notices, each with a stronger tone and alerting them of any action that may be taken if they do not pay their invoice(s).
The longer an invoice remains unpaid, the more likely it will never be paid, so let customers know as soon as their account becomes delinquent. Remember: customer satisfaction is very important in customers paying their invoices and renewing their service, so make sure your tone and messaging are professional yet firm.
Make it Easy to Pay You
- Provide customers with a variety of options for payment. If you don’t accept electronic payments today, you may consider offering those options since credit cards are a popular form of payment in the United States and direct debit is a popular form of payment in Europe. Depending on your industry, PayPal and Wire Transfers may be also be preferred by your customers as well. See more on how to maximize revenue using multiple gateways.
- Allow customers to update their payment method and pay online so they can do it anytime, day or night, at their convenience. Direct customers to a hosted payments page where they can securely enter their credit card information and make a payment. Some customers prefer to enter their credit card information directly rather than calling you to provide their information over the phone.
Configure Your Retry Logic
When an electronic payment fails, it is important to retry the payment again and equally important to retry it no sooner than 24 hours after the last attempt. If you have multiple payment runs scheduled throughout the day, it is not recommended to retry a credit card more than once a day as it can trigger fraud alerts with the credit card networks. Additionally, if a credit card fails due to lack of funds, you can try the card again the next day to see if funds are available. Configure your retry logic so that credit cards are retried within your preferred time interval, for example, every 24 hours up to a maximum of three retries.
Keep Track of Your Delinquent Accounts
Run reports to view your aging accounts and open invoices. Analyze your data to see if you have collections issue with customers in a certain industry, geographic region, or who pay by certain payment methods. The more you know about your delinquent accounts the more strategic you can be with addressing the problem.