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Still on the fence about investing in new tech for your small business? Learn how to measure the impact of collections software features on your bottom line.
Is your business struggling with late payments and dwindling cash flow? It's time to rethink your collections strategy. Bad debt can quickly accumulate if you just sit in the hope that people remember to pay you. Once you expand your venture, expect to get more customers, too.
Collections software isn't just about managing late payments; it's also about maximizing your revenue. By leveraging the right tools, you can significantly boost your ROI (Return on Investment), improve customer relationships, and drive your small business forward.
This article explores how collections software features can boost your ROI by covering key points such as identifying benefits, calculating costs, and key performance indicators (KPIs).
ROI, or Return on Investment, is a key metric that businesses use to figure out how well their investments are paying off. It looks at the financial return you get from an asset compared to what it cost you. Say you invest in collections software, your ROI shows how much it helps you recover payments, improve efficiency, and cut costs, all in relation to what you spent on it.
In short, ROI helps you see if the investment was worth it. Companies often use ROI calculations to decide if adopting new technology will provide lasting financial benefits.
Increased Recovery Rates: Smart software lets you analyze data to spot who’s most likely to pay, so you can customize your approach. This means more cash for your business and less time spent tracking down payments.
Reduced Administrative Costs: Manual collections can be both time-consuming and a lot of work. Automating routine tasks lets your team focus on more important things, like negotiating settlements or handling customer issues. This cuts down on administrative costs, leading to direct savings for your small business.
Improved Cash Flow: This tool speeds up the recovery of overdue payments by automating reminders, sending notices, and giving you a clear view of outstanding debts. With faster collections, you get quicker access to funds and prevent cash flow issues.
Enhanced Customer Relationships: By automating processes and offering flexible payment plans, you can provide customers with better service experiences. Good customer experience is key to maintaining long-term relationships and increasing the likelihood of future transactions.
Collections software will have lots of perks, but it costs money. Make sure you weigh the benefits against the price to see if it's worth it. These costs can be split into a few main categories:
Upfront Software Costs: This includes the purchasing price or the initial subscription fee (if it’s a cloud-based solution). Some providers charge a one-time fee, while others offer monthly or yearly subscriptions.
Implementation Costs: Getting everything up and running will cost you. Plus, you will need to set it up, move over your old data, and teach your team how to use it. Companies may also require integration with existing systems, such as accounting or ERP platforms, which can add to the overall expense.
Ongoing Maintenance and Support: Some costs continue after the software is operational. These include regular updates, customer support services, and any customization requests needed to tailor the package to your company’s specific needs.
Opportunity Costs: Consider the costs of not adopting a collections solution. Delays in payment recovery or reliance on inefficient manual processes can result in missed opportunities, cash flow issues, and diminished profitability.
ROI measures the profitability of an investment by dividing the net profit by the initial cost. Here is a straightforward formula:
Sample scenario: a local business invests ₱50,000 in collections software. Over the year, it helped recover ₱200,000 in overdue payments that might not have been collected otherwise. The total cost of the software (including purchase, training, and maintenance) is ₱50,000.
Calculation:
1. Net Gain from Investment = ₱200,000 (recovered payments).
2. Cost of Investment = ₱50,000.
The ROI for this investment is 300%, meaning the business gained three times its initial investment through the software by recovering more funds efficiently.
To monitor your success and accurately measure ROI, small businesses should track several Key Performance Indicators (KPIs). These provide insights into how well the tool is improving collections performance and financial outcomes. Consider these factors as a start (feel free to add your own KPIs).
1. Days Sales Outstanding (DSO): DSO is essentially how long it takes customers to pay up. The lower the number, the quicker you get your money. This means more cash in the bank and better profits.
2. Collection Rate: This KPI tracks how good your team is at getting back money from customers who owe you. The higher the percentage, the better your software is at helping you collect.
3. Cost per Recovery: This metric helps determine the expenses related to collecting each debt. With automation, your chosen solution should lower this cost.
Mochi Solutions is just what you’re looking for. Whether you’re a freelancer with a global client base or a SAHM with a promising food business, Mochi has the tools to simplify collections.
Using just a single platform, you can make and send invoices, manage customers, track payments, and schedule auto reminders - no more manual encoding or guessing. Just straightforward, transparent billing you and your customers will love.
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Mochi Solutions is a billing and collections platform designed to help Filipino businesses get paid on time, every time. By digitalizing the invoicing process and automating repetitive tasks, we empower businesses to focus on growth.
