Dealing with late payment: a guide for SaaS companies
As a SaaS company, you’ll likely use a subscription payment model. And with that comes the opportunity for some customers to miss a payment.
Often, late payment comes down to an innocent oversight. In the humdrum of daily business, someone forgot that you need your subscription fee. Unfortunately, sustained late payments can hurt you and your cash flow.
So, we’ve put together a guide for SaaS companies, to help deal with late payments. From minimising their occurrence to answering the excuses, here’s what you need to know.
Start as you mean to go on: preventative measures
Naturally, the best way to deal with late payment is to avoid them in the first place. As such, there are certain things you can do to help your clients keep on top of their payments. It all revolves around making it easy to pay you.
• Clarify your terms and conditions from the offset
It’s very much a case of start as you mean to go on. When the customer signs on with you, make sure they understand your terms and conditions. Namely, what they need to pay, when they need to pay it, and what happens if they don’t.
• Offer the most convenient payment methods
Make it easy to pay you. This means offering multiple payment options so that your customers can use the method of their preference. By doing this, you remove hurdles to payment.
(Bonus tip: enabling auto-renewals is particularly useful. Your customers don’t even need to remember to pay you, it all happens automatically.)
• Make sure your invoices are on time and accurate
Predictability breeds routine, which in turn, translates to customers remembering to pay you. Always send your invoices on time, don’t leave the customer to chase you. (Hint, they likely won’t, resulting in a late payment.)
Another hurdle that causes late payment is invoice disputes. So, triple check the accuracy of every invoice you send.
• Keep in touch
Often, late payment happens due to administrative oversight. When a payment date is approaching, send helpful reminders. For instance, handy automated emails that let your customers know that payment is next due on X date, due soon, and now due.
The frequency of these depends on your billing method. For instance, if you bill monthly, your reminders might be two weeks before, one week before, and the day before.
When payment is overdue
The deadline has passed, but the client hasn’t paid. Now what? First things first, remember that there may well be an innocent reason that the client has a late payment.
Step one: email reminders
Start with a friendly email reminder. Let them know their payment is past due and remind them that they can get in touch if they’re experiencing difficulties. If you don’t hear back after a few days, follow up with another email reminding them of their late payment, and how to pay you. (You can automate this process, too.)
If you still don’t hear back, then you might send your first email warning of an impending suspension of service.
Step two: pick up the phone
After a week or so, if you’ve not yet received payment nor reply, it’s time to pick up the phone. With a phone call, you know the client has received your message. If you can’t get through, call again tomorrow. Rinse and repeat until you either get a result or decide to move on to the next step of dealing with late payment.
Step three: be accessible and supportive
It’s around here that you may start to receive some excuses or problems regarding the late payment. This is an opportunity to solve the problem in a way that benefits you and your customer. (And boost your relationship.)
For instance, be open to creating payment plans for an overdue debt if your customer is struggling. Plus, a good rapport with your customers can encourage timely payments.
Step four: suspend service
You need to be willing to switch off service in the event of extended non-payment. You should not continue to provide a service that you aren’t getting paid for.
This is the most common last resort for a SaaS company. Note, however, that you shouldn’t switch off service the moment you encounter late payment or without notice.
Before suspending service, you need to make sure you’ve made every effort to get in touch. You should also ensure you’ve sent ample notice of your intention to suspend service until you receive payment.
Last resort options
You’ve done everything else. Payment is now over a month overdue. Now is the time to think about more drastic measures. Remember, you provided the service, you deserve to get paid.
• Legal action or a debt collector
In some rare cases, you may find that you don’t have much hope of recovering the debt. The client ignores you; you can’t get in touch at all, maybe they’ve even disappeared. In the case of large debts, you might then need to consider your legal options, or selling the debt to a collector.
• Fire the customer
Sometimes it’s better for your business if you let a customer go. When you’re constantly chasing a client for payment, you’re constantly spending time and money. It can upset your cash flow and cause a ripple effect across your business. As a last resort, you might find times that you need to use your discretion to decide whether it’s worth it. And if it’s not, it’s time to let the customer go.
You’ll hear them all at some point of other. When you must confront a customer about late payment, it’s good to have a plan for the excuses you can expect to hear. Here are a few of the most common:
• “We’ve not received any invoices”
You know (and have proof) that you sent them on time. By requesting a reply or read receipt, you have proof that they’ve received it too. If you never received a reply, be sure to follow up requesting one. This makes this excuse difficult to use.
• The person you need to talk to isn’t in
You have two options here. You can ask when they’re due back, and resume chasing a late payment on that date. Or, you can ask for someone that’s authorised to make a one-off payment, and request that.
• They have a cashflow issue
This is where they claim they can’t afford to pay you, or they’re waiting on a payment from a third party.
If a customer hasn’t paid you because of their cash flow issues, try working with them to create a payment plan that they can stick to. Ask for what they can afford now, and the rest on the date they give, for instance. That way, you’ve given empathy and leniency, and know the dates you can expect your payment.
Dealing with late payment
The key to dealing with late payment lies with communication. Sometimes, things happen that can get in the way of things like timely payments.
As a SaaS company, you will likely encounter the occasional late payment. No matter the reason, always keep the client informed of what’s happening, what you’re doing, and why.