Last editedSep 20233 min read
You’ve worked hard to get a new customer, you don’t need to work harder to make sure you’re paid on time and get that cash flowing into your business.
But often businesses wait far too long to get paid. Research from Forrester shows that most businesses wait up to 20 days to get paid beyond the payment due date. Problems faced when collecting payments on an ongoing basis; like revenue getting stuck in account receivables, can jeopardize your cash flow and ultimately impede business growth.
In this article, we look at some of the common issues around cash flow and how ACH Pull can help you tackle them.
1. Reducing your Days Sales Outstanding (DSO)
20 days sales outstanding seems dangerously high and an unnecessary pain when trying to grow your business.
When businesses have an excess in receivables or a large number of outstanding payments, these uncollected funds can’t be put to better use. This limits investment in business growth, reduces resilience in a potential downturn and restricts the agility of a business.
So, what causes a high DSO and how can it be avoided?
A poor DSO is often associated with push-based payment methods, like wire transfers and checks, that rely on a customer to initiate the payment. It means you can be waiting around for the customer to make payment and potentially spending time chasing them if they miss the due date.
ACH Pull, on the other hand, automatically pulls the payment directly from your customers’ account on the due date set, all without you or your customer lifting a finger.
Businesses using ACH Pull with GoCardless, see 97.3% of payments collected successfully at the first time of trying. Research from IDC identified that with GoCardless, businesses reduce the time to get paid by 47% and minimize debtor days by taking control of when payments are made.
“GoCardless has a massive impact on the business because it helps us improve cash flow. As soon as we get payments in our bank, that's cash that we can invest in our aspirations for growth.” Scott Westbrook, Director of Business Systems, Deputy
2. Preventing failed payments
Payments fail for several reasons and failure rates can vary significantly depending on the payment method. Failed payments, if left unrecovered can result in customer churn and bad debt.
The costs associated with payment failure can quickly add up. Research from Accuity found that the average cost of failed payments, including fees, labor and customer churn for a corporate sized business in the US could be up to $200,000. Taking this cost into consideration, any reduction in failed payments can have a significant impact on a business’ cash flow.
But not all payment methods are created equal. Some methods are almost 3 times more likely to fail than others.
Payment method and average failure rate:
Credit and debit cards - 7.9% Wire transfers - 6.5% ACH Pull - 2.7%
*Data from GoCardless survey of over 2,000 business decision makers
By even just adding a more reliable method like ACH Pull to your payment mix, you can reduce the number of failed payments considerably. You can then reduce the risk of those failed payments becoming bad debt or the numbers of customers churning as a result. This creates a more predictable revenue for businesses and has a positive impact on cash flow.
“When doing some analysis on our failure rates, GoCardless has a much lower failure rate than our average across all of our different methods. Cash flow is more predictable too. Less late payments mean we don’t have to fill the gaps which is enabling us to invest our time and money in our continued global growth." Courtney Chin, FinTech Operations, Deel
3. Reducing complex processes
Cashing checks, reconciling payments and chasing customers is all labor intensive for your teams and can take time. Research from Forrester found that some businesses have teams of up to 20 people to handle recurring payments.
Instead, ACH Pull takes care of it all for you.
Once set up, payments are automatically pulled from your customers’ account meaning there’s no need to chase them to initiate payment. It is then processed without you having to do anything. Within 4 days, the payment is settled and the funds land in your account.
Businesses using ACH Pull with GoCardless have managed to reduce their payment admin by up to 59% (IDC). Less time spent managing payments means you can dramatically improve your cash flow and better predict your revenue.
GoCardless also works with over 350 billing, accounting and invoicing partners so you can automate the process even further. You can easily integrate GoCardless with any of our partners and cut down the time it takes to reconcile your payments.
Diaper Stork, a subscription based diaper service, managed to save 2-23 hours per month on reconciliation and accounting through their integration with Xero.
“As a small business owner, I wear a lot of hats. Anything that frees up time for me to focus on higher-level strategy rather than transactional tasks is a huge help.” Carrie Pollak, Owner, Diaper Stork
For growing businesses, the predictability of revenue and maximizing cash flow is essential. Improve your cash flow and tackle the challenges of collecting recurring revenue with dedicated solutions from GoCardless.