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.
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:
With that in mind, here are five best practices to help you get paid faster!
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:
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.
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.
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.