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Dealing with late payment as a SaaS Business

Last editedApr 20222 min read

Software as a service (SaaS) is one of the world’s fastest-growing business solutions, with an estimated value of £10.9 billion in the UK alone by 2025. Those with a talent for coding, a spark of imagination, and a good business acumen can find opportunities for success in this industry. But low barriers to entry mean high levels of competition and a constant uphill battle to reduce churn and maintain healthy cash flow.

Churn occurs for many different reasons. But one of the least desirable is churn due to late or missed payments. Not only can late and missed payments impinge on your company’s cash flow, they can cause you to waste valuable time chasing payments up. Not to mention the awkward conversations that can occur between your company and the client.

Here, we’ll look at how to deal with late payments effectively while taking proactive steps to ensure that they don’t happen in future.

My SaaS payment is late, what can I do?

You work hard to reduce voluntary churn. But did you know that as much as 30% of churn is involuntary? The most common culprit? Failed credit and debit card payments.

More often than not, there’s a perfectly reasonable explanation for this, such as the customer replacing their payment card and forgetting to update their payment method on your customer portal. However, when operating in the B2B space, other factors may impede collection of payment including:

  • points of contact being on leave or away from their desk

  • clients experiencing cash flow issues of their own

  • invoices accidentally not being sent/received

The good news is that you can insulate yourself from this risk and recover late payments quickly with preparation and decisive action.

Communication is key

Communication is the key to harmonious cash flow in the SaaS space. Firstly, clients must understand what is expected of them in terms of when and how they are to make payment, and what the consequences of late payment will be. So make sure that your contract clearly explains:

  • your right to claim interest on late payments

  • your right to claim compensation for missed payments

  • your right to recover costs incurred when collecting your debt

Automated emails can be a useful reminder to clients of when payment is due, or when a payment has failed. But when payment is overdue, it’s important to be as supportive and accessible as possible.

A good procedure for missed payments is as follows:

  • send an automated email reminding them that payment is due and encouraging the client to get in touch if they are having difficulties

  • call the client if you have not heard from them within a week

  • establish a timeframe for services to be suspended if the client does not make contact

  • suspend the client’s service only as a last resort

Late SaaS payment prevention

Aside from establishing clear terms for repayment in the client’s contract, your next-best weapon against missed payments is the payment method itself.

Credit and debit cards can be problematic when they expire. So, take payments straight from the source where you can.

Collecting from the client’s bank account (via direct debit) allows SaaS companies to assert more control over their payments. GoCardless makes it quick and easy to collect recurring payments, while leveraging Instant Bank Pay, ensures greater control for one-off invoice payments where customers prefer to authorise each individual payment.

This helps to eliminate late payments, save time and money, improve cash-flow and reduce operational stress. It’s also quick and easy to set up, with no set-up fees.

We can help

If you’re interested in finding out more about how to deal with late payments in the SaaS landscape, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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