How to Run Accounts Receivable at a SaaS Company

AR Process

Cash is your lifeblood, and available cash is driven by the health of your A/R. As your company grows, your A/R account will naturally grow as well. However, it is important to keep a close eye on your A/R account and manage it proactively rather than only paying it mind when there is a cash crunch.

When it is time to sell the business, a buyer will look at the collection history and how the customers have paid historically. In addition, poor AR processes result in more working capital needed and for a B2B SaaS company, working capital is expensive. This is especially the case if the sales organization is high performing.

The impact: Proactively managing your collections with an A/R strategy will ensure that your actual cash position mirrors your budgeted position, preventing surprise cash crunches and stress.

The goal: Establish an A/R strategy to effectively manage your cash flow.

How can Golden Section Assist?

Steps

Create an A/R Process

1. Review any process you currently have in place around invoicing and collections. What is working? Where is there weakness?
2. Consider the best practice process below.
3. Brainstorm and establish the A/R management process that would work best given your company's structure, product, and constraints. Be sure to include specifics (time frame, people, deliverables) to make this process as actionable as possible.

A/R Best Practices

1. Person Accountable: One specific person needs to be tasked with collections. It is too important of a job to not specifically allocate resources towards, and is too easily put off when left to individual account managers. The person responsible for collections should be detail-oriented and reliable, and have strong interpersonal skills. At the end of the day, this person will be establishing relationships with other people and asking them for money; getting the money is often easier for people who can easily connect to others.
2. Process:
   • Include a 'billing on signing' term in the contract. The sooner the process gets started, the sooner you will collect. Moreover, your customer is still excited about your product and is likely to pay quickly.
   • Transition. As soon as a contract is signed, the Sales Rep alerts the Collections point person and sends the contract.
   • Invoice! This seems obvious, but this step can easily get missed in the transition from contract to onboarding. Also, a specific due date should be listed on the invoice; "due in 30 days" is vague enough (30 days from when?) to be easily ignored.
   • Track. What accounts are approaching a due date?
   • Contact customer.
   • Five days prior to the due date, reach out to billing department at the customer's company to give a friendly reminder and check in on the status of the payment.
   • On the day the payment is due, reach out again if the payment
   hasn't been received.

• A note on Renewals: The above process will be the same for renewals except for the transition stage. Either a Sales Rep or the Collections point person needs to track when an account is approaching a renewal date. A process then needs to be put in place to decide who will contact the customer prior to a renewal contract being sent to check whether there is an opportunity for account expansion.

1. Deliverables:
   • Daily cash report. We recommend the Collections point person email a daily cash report to the management team. This report should include the day's cash balance, an itemized accounting of current A/R and A/P, and sources/amounts of any cash credits or debits. We believe a daily cash report keeps your company's cash balance at the forefront of your minds, encourages transparency and accountability, and prevents any surprises.
   • Monthly A/R KPIs. Choose KPIs to judge your A/R management process. We recommend tracking Days Sales Outstanding (DSO) and a historical comparison of billings versus collections (\# and $) in a month.
2. Codification: Using the provided template, record your A/R Management Process and expectations for Deliverables and tracking KPIs. Inform the appropriate people.

Iterating

The A/R process you first set can always be improved. Over time, use the monthly KPIs to identify where improvements can be made.

1. Questions to consider:
   • What is driving our expanding A/R line?
   • Do we need to drive the A/R down?
   • Are we acquiring customers we shouldn't?
   • Is there a particular segment causing issues?
   • Are our customers happy?
2. Potential Improvements to Billing and A/R Cycle:
   • Shorten cycle time:
   • Use recurring credit card or direct deposit payments if appropriate
   • Track product delivery and shorten delivery cycle. Deliver faster; get paid faster
   • Eliminate mistakes:
   • Is transition happening in a timely and effective manner?
   • Are invoices being sent quickly?
   • Are they being sent to the correct person for the correct amount?
   • Improve business model:
   • Eliminate mistakes so as to not upset the clients, which could delay bill payment
   • Improve the implementation process to drive adoption and keep clients happy