There are many factors that can affect your business’ cash flow. Not having a properly managed cash flow can be damaging to your ability to pay bills on time or allocate funds to marketing campaigns to take advantage of opportunities; one of the key aspects that can affect your business’ cash flow is your billing frequency.
It may seem fairly obvious, but billing clients irregularly can affect your cash flow. The further apart the billing periods for your clients are, the fewer times in each period that money is coming into the business but the higher the amounts are. However, there are also more subversive reasons why you need to carefully select how often you are invoicing your clients.
So in terms of billing frequency, what else can have an impact on your SaaS business’ cash flow?
1. Retention Rates
When you are looking at your retention rate, the frequency and the value of transactions are very important. If a customer is paying a low amount, frequently, then they will notice the payments leave and take a concerted effort to use your software. This gives you a higher chance of retaining their custom when it comes to a renewal period.
If the customer is paying a higher amount on a monthly period, the opposite can happen. They will likely be very active in the first few months but then either get too busy or slip into old practices that mean your software sits unused. Then when it comes to renewal, they may think that they didn’t use your software much and therefore discontinue.
2. Administration With Customer Changes
Changes with the customer can be a significant problem. If your customers have a long time between renewals, then you will have to wait a longer time before details are properly changed. If this is their payment details, then they could be late with their payment or they could decide to cancel anyway.
At the same time, having too frequent changes with your billing can mean customers don’t always get their details in time to make a payment. This can anger customers when you start chasing them for money and create gaps in your cash flow.
3. Unexpected Payments
When you accept payments too infrequently it can often mean that you have a lot of money come into your business at one time. This may look good on your accounts but it does mean that you can often mismanage your money, and this restricts your ability to cope with unexpected costs such as equipment breaking down.
At the same time, too infrequent billing means that while some months look really positive, other months could appear poor as they only achieve small payments and large costs. By spreading out your costs and payments you can manage your finances a lot more easily.
4. Trust With Customers
Trust is one of the most fundamental factors when it comes to retaining customers. When you have infrequent or too frequent payment, customers can become disillusioned with your product and question the validity of the service you provide. Therefore you will see a higher rate of customer churn.
At the same time, they will take to the internet and may leave poor reviews of your business. This can then impact new customer acquisition further limiting your cash flow.
Your SaaS business’ cash flow is very important. The billing frequency is a key component of this and getting it right is critical. If your invoicing is too frequent or infrequent you could suffer from numerous problems that can damage your chances of growing a very successful SaaS business. Finding that sweet spot for billing is essential.
For even more information on recurring billing best practices.