There are many organisations that concentrate their early focus on hyper-growth. They invest heavily in customer acquisition and create extensive ecommerce capabilities. While developing business and sales, every company should carefully monitor their Monthly Recurring Revenue (MRR) collection rate to ensure a positive cash flow and to avoid running out of money.
A simple fact is that compared to 60% MRR recovery rates, organisations which recover at least 100% MRR harvest more profits with exactly the same revenue, growth and expenditure. Having the right collections and recovery solution increases the cash available to fuel that hyper-growth you seek – without sacrificing profitability.
Some background:
- Klarna, a Swedish Fintech company, has been experiencing credit losses (up to £81 million in the first half of 2021) due to collections not keeping up with the pace of accounts going into arrears
- According to Jason Lemkin, most businesses only collect 60-70% of their Monthly Recurring Revenue (MRR) rather than recovering at least 100% of their MRR
- By implementing a cloud-native collections software, your business can see 15%+ increase in cash collection
In this blog post, we will share insights into why it is essential for every financial organisation to establish a collections strategy early and will touch on the ways in which you can improve your MRR collection rates.
Why is a collections strategy so important?
Obtaining signed contracts does not guarantee that customers will pay you on time. Organisations with excellent collections and recovery rates can avoid running out of cash and will generate more profits with exactly the same revenue, growth, and expenditure moving forward. In addition, excellent collections management provides you enough runway until the next fundraising round which can boost your valuation.
For instance, your organisation is doing €10,000 in Monthly Recurring Revenue (MRR) and all expenditure on a monthly basis including employee salary costs you €20,000.
- With 60% MRR recovery rate, your burn rate would be up to €14,000 per month
In principle, you still have a lot of money on your bookings because businesses are still growing and everything seems to be promising. However, since you ignore the significance of collections, you might suddenly run out of cash and your savings might not last for a long time.
- With 100% + MRR collections rate, you fuel your success greatly
On the other hand, if you recover at least 100% of your collections/account receivables or even collect 110% in your MRR, you increase your cash flow. This is cash that can buy you more time and be used to fuel growth investments and development of your businesses. A win-win situation.
Since collecting cash payments is as important as promoting your brand and business, we have listed the options for setting up a collections strategy. In the end, investing in software to optimise and execute your strategy is as important as investing in your marketing automation or customer service solutions.
Options for increasing your MRR collection rate
1. Strictly monitor your MRR
Assign responsibility for tracking the performance of your collections rate and to make sure that you hit your target Monthly Recurring Revenue (MRR) goals every time. However, with volumes of invoicing information, account details, and other key data scattered across different systems and platforms, it is difficult to manually keep track of collections performance and make informed decisions. It is not impossible but it is time-consuming, hardly scalable and results in manual errors.
2. Build a collections solution on your own
Building an in-house collections platform is also a possible solution. However, you will need a lot of resources from your IT department. Not to mention there are different regulatory compliance requirements that you need to consider and follow. Moreover, creating a collections platform from scratch is a long-term project which requires plenty of time, effort, testing and money–lots and lots of money. Your company’s cash flow problems might be too urgent for you to build and test a debt collection system.
3. Leverage collections software to fuel your MRR collection rate
The most cost-effective and scalable solution is to leverage a cloud-native, all-in-one collections platform which offers a 360 degree overview of your collections condition. With a full solution at hand, you save much time and money hiring collections employees or developing a custom debt management platform for your business.
A complete collections management platform should offer the following functionalities:
- Self-service payment functionality – get paid faster
Instead of chasing the repayment from your customers month to month, leverage self-services collections functionality to reduce outbound call volumes and abandon the extensive manual work.
- Omni-channel communications – optimize how and when you communicate with your customers
Given the amount of connectivity in the digital age, you need to consider adopting and leveraging more popular digital channels like SMS, voice, WhatsApp and approach your customers using the channels they are used to.
- AI & ML – automate and improve decision making
AI and ML help you segment your customers into different categories. You can offer more tailored communication strategies to different segments based on their payment behaviours and more. You are also able to keep track of the most successful dunning messaging, prioritise urgent and at-risk cases and optimise your collections agents’ time and effort.
- Case management – empower your teams
Case management offers you a bird’s-eye view of every account’s contact information, payment history, instalment plans and their interaction with collections employees. With this account-based management solution, your agents can examine if a customer has multiple claims (mortgage, car, phone, etc.) and prioritise collections strategies accordingly.
Simply let the collections software manage your recovery businesses for you so your employees can focus more on your top line growth.
Make collections and recovery a growth lever
Don’t let all the investment be lost because you don’t have a future-ready collections solution to help you:
Get paid faster: Set up self-service and digital journeys
Apply domain expertise: Manage, automate, and make processes compliant
Gain control: Design, run and test messages and whole segment strategies
No need to always rely on IT. With all-in-one collections and recovery software, you can get access to best practices that work easily with your systems. If you want to learn more about how collections software can help you dramatically increase your MRR collection rate with minimum effort, feel free to contact us.
