It’s no surprise that collecting payments is a core business activity that must be managed efficiently in order to maintain cash flow and keep companies in good financial shape.
For SaaS companies in particular, who rely on recurring billing cycles and are prone to high churn rates, being able to collect and process payments at scale means minimizing the time spent chasing up customers, creating better operational efficiency
However, this can only happen with the right technology to hand to streamline the management of billing cycles and payment collection. In this blog, we’re going to dive into 9 best practices of collecting payments in SaaS, and how Stax Bill can help!
TL;DR
- To choose the right billing software, ensure it can support various billing models and can scale. Also consider pricing, ease of use, integration, and security.
- Automation helps to minimize overdue payments and errors, as well as enabling late payments and retries.
- Transparent, clear communication is vital to address disputes quickly and build lasting relationships with customers.
1. Understand Your Billing Cycle
Your billing cycle refers to the interval you’re charging customers for access to your platform or service. This may be fixed at a monthly, quarterly, or annual intervals, or according to your customer’s preferences. A clear billing cycle is essential for effective payment processing and cash flow management, as it ensures your business knows when to expect payment.
Automating billing cycles means this time-intensive aspect of SaaS subscription management is taken out of your hands. Automatically processing credit card payments and online payments upfront helps to avoid late payments and maintain a regular invoice schedule, streamlining your entire payment system.
2. Choose the Right Billing Software
Choosing a provider to manage recurring payments involves different considerations than processing online payments for one-off purchases. Your primary consideration should be whether a billing software can automate the various billing models your business is using (i.e. weekly, monthly, quarterly, annually) and whether these capabilities can scale. Other important features to consider are:
- Pricing (i.e. set-up fees, ongoing fees, transaction fees)
- Ease of use
- Integration with existing systems
- Payment methods accepted
- Security standards and compliance
Once you’ve narrowed down your potential billing options, it’s time to compare them more closely (cost, features, customer support, etc.) Invest time into reading customer reviews and testimonials from fellow business owners in your industry and size. Where needed, request demos and free trials to understand how a solution will support your business and eliminate friction and pain points.
Stax Bill provides robust features like customizable invoices and scheduling, automated workflows, as well as integrations with key platforms such as Quickbooks and Salesforce.
3. Automate Invoicing and Payment Reminders
Automating the sending of payment reminders is one of the most effective ways of minimizing overdue payments and unpaid invoices. Automation ensures that all your invoices are sent out on time and contain accurate information, reducing the likelihood of human error and delays. Plus, setting a regular schedule of reminder communications in the lead-up to customer payments eliminates repetitive admin from your team’s workflow.
There’s a wide variety of automated invoicing tools available that can integrate with your existing business systems, meaning you don’t have to introduce an entirely new workflow.
It’s important to make sure that your automated payment reminders utilize multiple channels (email, SMS, phone call) to reach customers according to the method they prefer. Reminders should be sent in advance of payments being due, and then at regular intervals once the due date as passed i.e. 1 day, 3 days, 7 days with escalating language to reflects the severity of penalties i.e. a canceled subscription or legal action. However, all communications should provide clear instructions for how to use preferred payment methods, update payment details, or who to reach out to with any billing queries
4. Offer Multiple Payment Options
Offering choice and flexibility in the payment methods offer through your website or mobile app makes it easier to accommodate the preferences of your customer base. This not only improves the customer experience, but can also make it easier for them to fulfill their financial obligations, such as paying via bank account or using a Buy Now, Pay Later (BNPL) service.
Popular forms of payment in SaaS that you should consider accepting include:
- Credit/Debit Cards
- In-person payments
- ACH payments
- Digital Wallets (e.g. Apple Pay, PayPal, Google Pay)
- Bank transfers
To integrate multiple payment options seamlessly, make sure that you’re using a payment processor and payment gateway that can accept numerous payment options at the checkout. It’s a good idea to test all of these methods with your payment system to ensure they are functioning correctly.
5. Implement a Dunning Management Process
Dunning management is a system to communicate with customers in cases of late or non-payment. This usually comes in two parts: Firstly, sending regular notifications and follow-ups to your customers to ensure outstanding payments are collected. Dunning management also involves the use of automation to handle payment issues, such as automatic retries of credit cards, or identifying expired card details and sending a reminder for customers to update their preferred payment method.
Dunning management is essential to help SaaS companies avoid late payments and maintain cash flow, improving overall operational efficiency – but doing this effectively starts way before late fees kick in.
Firstly, make sure that payment expectations and terms are clearly communicated to your customers when they sign up, and collect information pertaining to their agreement. You should start sending reminders before the payment is due, regardless of whether you’re charging a credit card or the customer is making payments online manually. If the payment isn’t received on time, send follow-up reminders at regular intervals with escalating language.
Recurring billing solutions can help streamline the dunning process by providing templates and automated workflows to speed up payment collection. With Stax Bill, you can automate dunning communications with fully customizable emails and SMS messages, while our failed payment retry schedule reduces revenue leakage by 4%.
6. Transparent and Clear Communication
Open communication with your customers regarding payment terms is critical to building trust and maintaining customer satisfaction. When customers don’t feel taken unawares by a surprise payment or late fee, they’re far more likely to pay on time and rectify any outstanding payments quickly.
At the start of the customer relationship, it’s important to disclose your payment terms and get your customer’s consent for the chosen payment schedule, accepted payment methods, and any late fees or penalties. A self-service portal for your customers to manage billing information, check payment history, and view invoices will simplify customer communication, as they can access this information independently without going through a customer service representative.
If any disputes or misunderstandings offer, be upfront with your customer and investigate the issue quickly to identify the cause and the best way to rectify it. Make sure you explain the steps taken to fix this issue, and let the customer know how to escalate this further if they wish.
7. Monitor and Analyze Payment Data
Analyzing how quickly and easily your business is collecting payments from customers is important to identify areas of improvement in your payment process. Key metrics to track for effective payment collection include:
Days Sales Outstanding (DSO): Measures the average number of days taken to collect payment once a sale has taken place.
Payment Success Rate: The percentage of successful payments, out of the total payment attempts within a specified period.
Churn Rate: The percentage of customers who cancel their subscription or service within a specified period.
Cost per Invoice. How much it costs on average to process each invoice.
Aging Report: Shows outstanding invoices categorized by the length of time they’ve been overdue.
Tracking these metrics will help you understand where your payment collection efforts might be falling short. A high churn rate, for example, is a strong indicator of overall customer dissatisfaction. Cost per invoice is a useful metric to understand how much those repeated follow-ups or debt collection activities are contributing to the cost of collecting payment – something that automation can reduce.
8. Customer Support and Relationship Management
Nurturing strong customer relationships is the first step to keeping payment issues to a minimum at your business.
Put simply, a late payment should not be the first time that a customer hears from you. This sets up a dynamic between you and your customers where any communications are automatically perceived as negative.
Instead, make an effort to engage with customers consistently with personalized communications that show an understanding of their needs and preferences. This way, when payment issues do arise, customer support can be much more effective in solving misunderstandings and providing timely assistance.
However, it’s still important that customer support teams undergo training and have a thorough understanding of your billing processes, payment options, and payment terms, so they can manage any payment-related queries sensitively and efficiently.
9. Legal and Compliance Considerations
Payment collection and keeping payment methods on file is subject to a range of different legal standards, including the Fair Debt Collection Practices Act (FDCPA), the General Data Protection Regulation (GDPR) in Europe, and the California Consumer Privacy Act (CCPA). Making sure that you understand the legal requirements for payment collection and staying compliant with data privacy laws will save your business a heap of liability and legal issues.
The easiest way to do this is by selecting billing software that adheres to these regulations and enacts a range of best practice security measures. This includes obtaining consent from customers to keep their card details on file, explaining how their data is used, and ensuring that customers can easily access, update, or delete their data as they wish.
Final Words
Efficient payment collection is essential for the ongoing financial health of any SaaS company. Implementing a streamlined payment collection process enables SaaS businesses to improve cash flow, reduce incidences of late payments, and increase operational bandwidth to handle more complex tasks.
By choosing the right billing software from the outset, it’s far easier to implement best practices like automating your billing cycle, automating invoicing, and offering multiple payment options. However, the billing process is only one part of effectively collecting payments; consistent communication allows large and small business owners to build strong relationships with customers that promotes trust in your service and decreases the likelihood of missed or late payments.
The first step? Evaluate your current approach to payment collection to understand where customers may experience friction in the process. Next, consider where automation could play a role in streamlining your operation Stax Bill enables you to automate the repetitive, so you can focus on your growing your business. Learn more.
