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April 6, 2010 | Authored by: Vindicia Team

The Value of Automatic Payment

The Services Tsunami–characterized by rapid product iterations, immediate customer feedback, and the growing acceptance of subscription billing–has affected many industries, from gaming to software.

Nonetheless, many companies in this era still issue traditional invoices and incur the significant overhead of days sales outstanding (DSO), that is, the average number of days it takes to actually receive revenue from a customer contract. Terms like Net 30 or Net 45 result in fairly significant DSOs, an obvious setback for a company’s cashflow.

To reduce DSOs, consider offering your customers automatic payment so that they can charge their payment method (credit card, debit card, ACH, and so forth) the amount of the transaction when payment is due. Subsequently, your DSOs will drop by a couple of days to a week, a benefit that’s well worth the cost investment of implementing the related payment and billing infrastructure.

Plus, a key factor for successful online services is customer “stickiness,” which, along with other best practices, enables you to maximize customer lifetime value. In sending customers monthly invoices, you give them 12 opportunities in a year to rethink whether or not to continue their subscriptions. With automatic payment, you minimize those second thoughts and the potential delay in cash from 12 separate checks arriving in the mail. Lengthier customer loyalty with more predictable cash in the bank–what’s not to like about automatic payment?

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Vindicia Team

Vindicia Team

We value our subject matter experts and the insights each of them brings to the table. We want to encourage more thought leaders to come together and share their industry knowledge through our blog. Think you have something interesting to contribute as a guest blogger? Contact us at info@vindicia.com