Do you have customers who never pay you on time? Dread the final days of the month due to the headache that is payment collection? Are you spending more time chasing customers for payment than on core business activities? According to the recent Atradius Payment Practices Barometer Survey, collecting late payments is the biggest challenge 22.5% of businesses face. So, if you have answered yes to any of these questions, you are not alone.
Having to chase after late payments is costly and frustrating – particularly for businesses with a recurring billing model. Month-after-month, hours of valuable time and energy are diverted from the critical business activities that require the greatest attention to drive growth, to following up on late payments. Ensuring that your customers are paying you on time is essential to the success of your business, as it helps you maintain a positive relationship with your customers. Most importantly, late payments deal a direct blow to your cash-flow, which can set your accounting books into disarray.
In a 2016 report, 33% of businesses reported that late payments threaten the survival of their companies. Faster payments would impact their ability to allocate resources to the departments that need them the most. Even though your customers have paid you late, that doesn’t change the fact that you still have costs to cover – such as wages and rent, and when payment doesn’t come through on time, you are left in limbo as to how you will pay off your debts. As a business owner, you shouldn’t have to accept late payments. Just as your suppliers expect you to pay them on time, you should also require your customers to the same.
Late payments occur for a myriad of reasons, which can range from lost bills to unexpected additional expenses that your customers incur and are not able to afford. As the causes of late payments are numerous and varying in nature, you can never guarantee that your customers will always pay their bills on time. What you CAN do is take some preventative measures to reduce the likelihood of receiving late payments, allowing you to take back control of your business.
So much more than just a payment gateway
This info sheet discusses how integrating your payment processing with your subscription billing and management platform will reduce late and failed payments by 700%.
Step 1: Make it easier for your customers to pay you
How easy is it for customers to submit their payment to you? If you have not clearly articulated how customers should make their payments or if you do not offer their preferred payment method, the answer may be as simple as making it easier for your customers to pay you. By providing your customers with the option to use the payment method that is most convenient for them, you will succeed in removing one of the barriers to payment that your customers may be facing.
Ask your customers how they would like to pay and make sure that you are able to accept all the most common payment methods, such as credit card, ACH, Stripe and PayPal. Sometimes the main reason your customers are paying you late may be as a result of confusion or miscommunication. Work with your customers by giving them a level of control in the payment process, as this can significantly impact the chances of receiving late payments in the future.
Step 2: Offer incentives for your customers to pay you earlier
Offering incentives for early payment can be a great way to gently push your customers to pay you earlier. Giving your customers a reason to pay you before the invoice due date can help reduce some of the frustrations associated with late payments come month-end. A great way to do this is to offer your customers a discount for purchasing an annual plan for your product. By offering a discount for an annual subscription, you are able to secure payment for your services for a year in advance of delivering the service. That way, you do not have to worry about late payments for 12 months AND you have the added bonus of guaranteeing that your customer will stick with your service for at least a year.
As a SaaS business, each time you have to reach out to your customer and remind them to make a payment, you are, essentially, reselling your product to them as will you have to re-convince them of the value your product brings and why they need to pay for it. This increases their chances of churning, as they may have not been aware that they are using your product, or they may have forgotten about their subscription. Failed payments increase the likelihood of involuntary churn, so kill two birds with one stone by offering an incentive for early payment.
Step 3: Communicate with your customers
There is a famous quote by Maya Angelou that reads “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.” This saying still rings true, particularly in the business world, as people do business with those they like and trust. That being said, take the time to communicate regularly with your customers and build a relationship with them. That way, they may be more likely to pay you on time, or they may give you a heads up in advance if things do not go according to plan, once you have an established relationship. In either case, you will know ahead of time what the payment situation is for each of your customers, allowing you to plan your finances accordingly so that you are not strapped for cash at the end of the month.
You will also need to tailor your tone and call to action for each of your customers when communicating with them, particularly with regards to late payment. Late payments negatively impact your relationship with customers due to broken trust. It can become awkward to chase after customers for payment, and if you are not careful as to how you approach them, your relationship can quickly turn sour. Good communication with your customers in the dunning process can build goodwill and lead to increased revenue from decreased churn. As a subscription-based business, the last thing you want to do is force your customers to churn. Try and do whatever it takes to keep them in good standing by sending emails at predetermined intervals based on your dunning strategy to remind them about their payment.
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Step 4: Invoice promptly and track overdue invoices
A large part of the challenge with late payments is keeping track of the money. You need to make sure you are sending out invoices to your customers in a timely manner. The longer you take to send them their invoice, the longer it will take for you to receive your payment from them. It is also crucial for your cash flow to keep track of all of your customers’ payment history. 20% of business owners have admitted to forgetting to invoice or follow up on an overdue invoice. If you have hundreds or thousands of customers who you invoice monthly, it can quickly become a complex process to keep track of all their payments, particularly if you are following a manual system. You need to religiously monitor and consolidate your records to ensure that there is no revenue leakage in your organization.
Step 5: Automate your invoicing
Automating the payment process saves you valuable time and resources that you can use to focus on core business activities. Take a long and hard look at your current billing activities. If you are spending too much time on billing and invoicing processes, struggling to keep track of all of your payments and finding yourself procrastinating on billing, it may be time to consider an automated subscription billing and payments management system. By making the switch to automation, you suffer from fewer interruptions to your revenue stream and spend less cycles chasing down customers for payments, as all your monthly invoicing and dunning management is taken care of automatically.
Take back control of your cash flow. Learn how Fusebill can help automate your recurring billing and subscription management to stop late payments today.
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