SaaS Companies: Master Accounts Receivable with AR Automation

According to a very popular VC firm ‘Bessemer Venture Partners’, the SaaS industry in India is projected to reach $50 billion in annual recurring revenue (ARR) by 2030. This is nearly 4X compared with 2023’s. The growth of the industry comes with many challenges. Like all other industries, Accounts Receivable is a major concern for a tech company’s CFO. In this blog, we will discuss the challenges of SaaS accounts receivable and will introduce AR automation and its important features. 

Before we get into the details, let’s understand the basics first. 

What is Accounts Receivable Exactly? 

From a general perspective, accounts receivable is a business’ outstanding invoices for which payment is to be received from the customers. When a business offers its service or products to its customers on a credit or pay later basis, the amount that customer owes is noted as account receivable in the accounting books. 

What Accounts Receivable Means for SaaS Companies? 

For SaaS companies, accounts receivable (AR) represent the money to be paid by the users for the software subscription/license or any other service that has been delivered to the user but the payment is still pending. Put simply, it’s the cash a SaaS company expects to receive from customers for services already delivered.  

SaaS Accounts Receivable Challenges for CFO

SaaS companies’ CFO has a lot of things to focus on, especially for the financial growth of the company. On top of that, these accounts receivable challenges add more to their problem. Here are the key challenges that a CFO of a SaaS company may face while managing accounts receivable: 

Delayed payments: SaaS users often pay to subscribe to bills on a recurring basis, i.e. monthly, quarterly or annually. However, late payments or non-payments can disrupt the whole cash flow cycle. 

Churn rate: When customers cancel subscriptions, it not only complicates AR process but also affects other financial decisions of the company. It reduces expected revenue and leaves outstanding invoices unpaid. 

Complex billing structure: Most of the SaaS companies offer tiered pricing, discounts, freemium models, or usage-based billing. While managing these diverse billing cycles, there is an increased risk of delayed payments or non-payments. To handle these complexities effectively, using reliable cloud-based billing software is essential.

High volume of transactions: As SaaS gets popular and business scale, the number of invoices increases too, making manual AR impossible. 

Credit risk: Assessing creditworthiness of new customers, small businesses or a startup is a challenging task. No one can guarantee the payment even after evaluating the profile. Extending the line of credit may lead to bad debt. 

Lack of integrated system: Many SaaS companies utilize multiple tools for different purposes, e.g. CRM, payment gateway, billing platform, accounting software. When the data among does not get transferred due to lack of integration, it creates a major problem in tracking receivables. 

Foreign Currency: For SaaS companies dealing with international clients, AR management involves handling multiple currencies, exchange rate fluctuations and varying payment terms or regulations across jurisdictions.

Cash Flow Forecasting: Predicting cash flow is challenging when AR includes variable payment terms, late payments, or unpredictable churn. This makes it harder for CFOs to plan for growth, investments, or debt obligations.

Automation and Scalability: Manual AR processes, such as chasing overdue invoices or reconciling payments, become unsustainable as the customer base grows. Implementing scalable, automated AR solutions requires upfront investment and expertise.

What is Accounts Receivable Automation? 

Accounts receivable (AR) automation is the application of technology to streamline and automate processes for a company’s accounts receivable. Talking from a SaaS company’s point of view, AR automation can replace manual processes such as invoicing, payment tracking, and collections with automated workflows. The implementation of automated processes can improve efficiency, accuracy, and cash flow. 

Essential Features of AR Automation

Following are the important features of AR Automation that SaaS companies should rely on:

Automated Invoicing: Generate and send invoices automatically based on the plan chosen or usage. 

Payment Processing: Seamlessly integrates  with payment gateways, enabling secure transactions. 

Automated Reminders: Send reminders automatically for pending payments. 

Real-Time Tracking: Tracking your AR becomes easier with automation. You can check metrics such as Days Sales Outstanding (DSO), aging reports, and cash flow trends in real-time.

Self-service Portals: Provide access to portals where users can view invoices, update payment methods, or resolve disputes without any assistance. 

Over to You 

We hope after reading this blog you get to know what is accounts receivables for a SaaS company, SaaS accounts receivable challenges and some key features of AR process automation. If you are looking for an accounting and billing software that tracks your cash flow efficiently, then don’t look further. Munim Accounting and Billing software is one of the highly trustworthy solutions that help manage your SaaS business smoothly. 

Frequently Asked Questions 

1. What are the accounting issues with SaaS?

SaaS businesses often struggle with one or more of the following accounting issues: 

• Revenue recognition 
• Managing deferred revenue 
• Accurate tracking of subscription payments 
• Accurate tracking of subscription billing cycles 

2. Do SaaS companies have accounts receivable?

Yes, SaaS companies do have accounts receivable because they may be sending invoices to customers in advance, but collecting the payment takes time. 

3. What is the rule of 10% in accounts receivable?

The rule of 10 says, ‘if 10% or more of a customer’s total receivable is overdue even after the payment deadline (which is 90 days generally), then all of that payment may be considered as ‘High Risk’ or ‘Doubtful’.  

4. What are the four types of accounts receivable?

Following are the different types of accounts receivable that every SaaS company must be dealing with: 

• Subscription payments 
• Loan payment 
• Interest payments 
• Insurance claims 

5. What is the DSO of accounts receivable?

Days Sales Outstanding (DSO) is a financial KPI that represents the average time taken for a company to collect payment against its sales. This is one of the key indicators to determine efficiency of accounts receivable and convert them into cash.