The truth about unpaid SaaS invoices
In today’s environment, cash is king. Especially in the fast-paced world of Software as a Service (SaaS), where sales cycles are longer than ever and involve more negotiation. Timely payments aren’t just nice to have, they’re the foundation of healthy, steady company growth. Industry reports show that up to 49% of invoices in the US are overdue – that’s a lot of cash in limbo.
SaaS businesses often grapple with late payments. But why? There are external factors like customer budget constraints and shifting priorities as well as internal operational issues that you can address and control. In this post, we'll explore the common issues leading to late payments, the impact unpaid invoices have, and how you can overcome it.
By understanding the root causes of late payments, SaaS companies can tackle these challenges head-on.
Common reasons for late or missed payments
When you find yourself chasing customers for missed payments, it’s likely that one of these scenarios is at play:
- The customer can’t afford to pay the invoice
- The customer doesn’t want to pay the invoice
- Some technical or operational issue is getting in the way of the payment
A.) The first step is identifying which customers have or have not paid their invoices. In SaaS, this can be challenging because many companies still use manual systems, which makes past due customers difficult and time-consuming to spot, further delaying the collections process.
B.) Once you’ve identified clients who are missing payments, chasing them with calls, texts, and emails takes a lot of time, and can create communication fatigue with the customer. And even if you get them on the phone to discuss payment, you’ll often be met with more complications. It’s as far from frictionless as you can get.
However, our research shows that 60% of missed payments consist of accounts that can be made current through simple solutions, such as automated reminder emails with strategic wording and timing, or the option of flexible payment terms.
The massive impact of unpaid invoices
Unpaid invoices create a domino effect of impacts across an organization.
- Decreased visibility of the company’s financial health
Without up-to-date invoice payments, runway and other financial benchmarks can’t be accurate. Unpaid invoices put you at risk of making decisions based on incomplete data, and that’s dangerous.
- Resources wasted on admin work
Without automated invoicing and payment tools, you have to spend a lot of money to collect your money. And that just doesn’t make sense. Plus, with your teams manually chasing payments, the risk of human error goes up, and the time your team has to focus on value-add projects goes down. It’s a lose-lose situation.
- Negative impact on cash flow
With money trapped in limbo in Accounts Receivable, your company is in a vulnerable position. First, you might be paying sales bonuses with money that you don’t have on hand, and second, the cash just isn’t there to leverage for growth projects.
Overcoming the challenges of unpaid invoices
Here are some tactics we’ve found that yield the highest repayment rates:
- Make it easy to pay
Make the payment process frictionless and intuitive for your customer. Consider ways that you can help them pay in the fewest steps possible. Can you include a direct payment link in your email reminders? Are you working with modern payment platforms that your customer prefers to use?
- Leverage automated tools
Automated tools can send invoices, reminders, and follow-ups, and they can help you identify unpaid accounts faster. The faster you initiate contact with non-paying customers, the faster you’ll have a resolution.
- Use engaging communication
When it comes to collecting your cash, boilerplate emails don’t cut it. There are people on the other end – connect with them! It’s the best way to get a response, and lays a strong paper trail if you need to escalate collections.
- Be consistent
The combination of automated tools with a human touch on a regular cadence empowers your team to do their best, and shows customers that you’re committed to receiving payment.
How to chase missed payments without a dedicated team
Your current team can do their best work when they’re equipped with the right tools. Here’s what we recommend.
Automated tools can launch collection email workflows using data points from your existing invoicing system. These sequences can be triggered by an event, such as a number of days past-due, and the right automation tool will give you complete visibility into email status so you know which customers need escalation in real-time.
Automated tools also allow you to personalize the customer experience without adding manual work. If multiple invoices are past-due, your automation platform can aggregate reminders into one communication to avoid email overwhelm.
With an automation tool like Capchase Collect, overdue payments can be viewed on a single dashboard. It’s directly integrated with your accounting platform and displays only the most crucial data, plus client segmentation, so you can easily build and execute a cohesive collections strategy.
Here at Capchase, we’re leaders in the SaaS financing space. We collect thousands of payments monthly, and we’ve had to fine-tune our own collections process through trial and error over the years. Leveraging our years of insight from our collections process coupled with the benchmark data of thousands of SaaS businesses that we’ve underwritten, we are proud to deliver the best in collections automation.
The ins and outs of the data
As we said earlier, industry reports show that 49% of invoices become overdue. The average Days Sales Outstanding has been steadily growing over the years and sits at over 40 days.
The more your invoices are up to date, the more cash you have on hand to grow. We’ve seen it firsthand countless times with our customers. Not only is Capchase in the business of helping solve this problem for our customers, but we have to maintain a very efficient and effective collections operations process ourselves and are proud to share that we have a repayment conversion rate of over 98%.
Want to know about how your company’s performance compares to that of your competitors on financial metrics like these? View our study on the state of the B2B SaaS industry here.
