Corona has hit globally and everything has changed. Your customers, if they don’t disappear overnight, sure as hell won’t be focusing on paying your bill or repaying their loans. Cashflows will be significantly impacted – theirs and therefore yours. The effects of this ‘new normal’ that Corona is leaving in its wake, will be a forcing function for startups and larger firms alike. They will have to take a hard look at how they handle credit and debt – how they approach unpaid bills 30, 60 or 90 days overdue – as a business trying to survive and as members of a society in a state of disbelief.
“The issue is that most SaaS start-ups are terrible at collecting cash that doesn’t come from a payment gateway.” —Jason Lemkin, Founder Saastr
The booming economy that drove high MRRs at your startup is nowhere to be seen in the short term, and you now have to address a topic you avoided in the best of times – in the worst of times. Going forward you have to change how you perceive and approach your receivables and your collections efforts – from an afterthought to a key leverageable asset to build advocacy and therefore to build a strategy to maintain your cash flow.
What are the 3 Key Challenges to Addressing Receivables in this New Normal?
You need to be fast. Every month that you wait, the load of unpaid bills will grow. It’s anybody’s guess on how far out we are to beating Corona and it’s financial wake. When addressing receivables, startups are hampered by
- lack of operational knowledge
- lack of flexible technology solutions and right now
- a need to focus on short-term results.
In the current state of the globe it’s too difficult to address this problem with headcount.
Why is Flexible Technology Important?
This is where software can help you get something in place quickly and without needing a ton of development effort. You can pivot your approach to creating solutions with your customer – offering your customers options for their unpaid bills right now – not waiting another 30, 60 or 90 days. This affects not only your cash flows but the experience of the customer in the payment or recovery process.
Resolutive Dialogue and Advocating for Your Customer
With a software solution in place, you can offer to do two main things. You can incentivize your customers to pay earlier. Talk with them and offer discounts if they pay before the due date. Be creative. Come up with campaigns to get those customers who too are thinking about cutting their burn rate, to jump at the opportunity. You are not taking advantage. You are providing a solution and one that is mutually beneficial.
Or offer to them options to pay later. If you are a business that is able to help in a crisis situation, provide your customers options to defer payment. If your business right now is profitable in spite of this crisis, be good to your community of customers and help them – in as many ways as possible, for you to implement. No one forgets those, who during hard times, reached out with a helping hand. No matter what, you will be building lifelong customer loyalty.
Addressing a Systemic Issue
Going back to what Jason wrote over a year ago, SaaS companies have grown to as much as $5m in MRR with millions in the bank from VCs. No one worried about receivables. Everyone figured that customers would eventually pay and why bother pissing them off by nagging them about repayment.
Are you at best collecting 50 or 60% of your MRR on time right now? Or even worse, are you a large financial services player and you’ve let NPL’s (non-performing loans) grow over the years, with that load just sitting there? In either case, you’ve invested significantly in customer acquisition to build up your customer base. Are you really willing to throw this away?
I saw this back in 2008 and 2001. If you are worried about keeping the lights on as a business manager, you push back payment on non-essentials first. You plan on eventually getting around to paying those bills but salaries and rent take priority. You are not prioritizing the startups whom you decided to take a chance on. Hell, they may be out of business before getting around to your bill. You choose to wait, playing a game of chicken. You hope they disappear, maybe just writing off that unpaid bill you have with them? It’s unfortunate but this is the reality for so many companies out there right now, be they in financial services, software or retail.
With everyone getting highly creative as well as stingy with their cash the chances are you just aren’t going to get paid on time. You have to put the tools and strategy in place to use receivables as a way to build immediate, plausible solutions with your customers and therefore build a strategy to maintain your cash flow.
Reframe to Focus on Resolutive Dialogue
Everyone is overwhelmed but if you are a business owner, this topic has to be addressed. Instead of focusing on the term collections, reframe it as a focus on creative solutions for you and your customers, whether the bill is about to come due or is already overdue. Flexible technology is available to help your business and your customers survive.
Let me know if you want more on the topic. I am happy to dive into areas companies want to hear more on. I’ve been around it for 8+ years and it’s why my co-founder Michael and I started receeve. We saw the opportunity take a process and with ML/AI make it have more positive outcomes for both parties. Resolutive dialogue may not roll off the tongue but it’s the core of improving cash flow and liquidity while being more ‘human’ in the process.