Managing your Accounts Receivables effectively.

~ 3 min read | June 22

Getting Paid in a Subscription Business

It is not that your customer doesn’t want to pay. It so happens they do not understand your urgency to get paid on time. It is ironic they are at the receiving end from their customers as well.

With subscription model, this problem should have been solved much easier with prepaid billing at the beginning of the month. Unfortunately that is not the case, especially in India due to inability to do recurring billing with credit cards.

ECS is definitely an alternate option, but it requires persistence to work through the challenges of making your customers sign-up for payment. We’ll discuss the challenges with ECS and options in another post.

Basics are still the same

  • Cash is king.
  • Nothing funds your business better than money from your customer.
  • Once you start making money from customers, whether it is in the order of hundreds, thousands or hopefully lot more, you need to keep a  close watch of your cash flow like a bull dog.

Days Sales Outstanding

Standard payment terms with most businesses is Net 30 – meaning you should get paid 30 days from the day your service or good is delivered.

Collection cycle – 45 days is really really bad for your business, especially in a subscription model where it is preferred to get paid before delivering the service.

A simple tracking spreadsheet to note down payments received, payments that are due, failed transactions that require* follow-ups *and all the details readily available to follow-up with customers will go a long way in helping you stay in control of cash flow.

A friendly reminder around the 30th day and couple of courteous but firm phone calls to customers should help you get paid.

So, what are the options to ensure you get paid on time?

Follow-up, follow-up & follow-up relentlessly

Offer (steeper) discounts to get prepaid or paid earlier. Some companies offer 2 to 5% discount to get paid by the 10th day – “2% 10, Net 30″. Take advantage of such options.

Limit the credit to a customer to specific value or set triggers to follow-up rigorously.

  • Do not let a particular customer’s credit accumulate beyond couple of months.
  • You might as well offer a one month discount, write-off the amount as an act of good will, rather than getting into a nasty argument about getting paid and losing the customer completely.

Ideally you should have a dashboard that spells it out clearly for you. This should clearly tell you, how much sales outstanding is there classified by ageing number of days. Any sales outstanding over 45, you should stay on top of it to ensure you get paid.

As a business owner you should be reviewing the data weekly, if not daily.

Have automated follow-up mechanisms to send timely reminders to ensure you do not have to track and remind them manually. Having to manually track and follow-up makes scaling your business all the more difficult. Shameless plug: We are baking in the essential features in ChargeBee app, to manage your accounts receivables better. If there is something you are looking for we should discuss.

Here is an interesting discussion in Hacker News on getting paid: http://news.ycombinator.com/item?id=1545220

I am sure each one of you who has run a business, has a story to tell. Share your stories, tips or tricks and which apps / tools you use to keep a tab on your sales outstanding.

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Krish Subramanian

Co-founder & CEO at Chargebee