Subscription companies worldwide are providing services through their various subscription models, and reports suggest that the subscription economy is set to expand to $1.5 trillion by 2025. With increased demand, many subscription businesses must also manage higher volumes of unpaid service invoices.
The subscription model throughout multiple industries follows the same framework, where customers are provided with a particular set of subscription services in exchange for weekly, monthly, or annual payments. In such instances, subscription debt management has become essential in the subscription industry, especially when dealing with high-volume debt.
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Why Is Subscription Debt Management Important?
Subscription companies are dependent on their subscribers as they provide their subscription services. Like many other industries, the subscription market is no stranger to debt.
Keeping up with your subscription debt management is crucial as it can have significant implications for maintaining your cash flow, fostering positive customer relationships, enhancing operational efficiency, scaling your subscription to new heights, and developing strategies to avoid bad debt.
Automation for Subscription Billings
With the recent advancements in the automation industry, reports suggest that around 50% of manual tasks can be automated through automation tools and software. The same applies to subscription companies when managing a high volume of subscription debt.
Automation can be used to manage subscription billing. It can provide accurate and consistent billings across multiple channels, along with automated, timely reminders that ensure the probability of timely payments in subscription debt management. Moreover, automated dunning processes can help subscription companies provide personalized reminders that foster customer relations with subscribers, highlighting the importance of automation in debt collection..
Customer Segmentation
With so many users on board for subscription services, segmenting them into multiple groups based on different metrics can help businesses sustain their cash flow while managing a high volume of subscription debt.
In the case of subscription companies, customer profiling is based on factors such as payment history, creditworthiness, communication records, and much more. These factors provide valuable data to subscription companies for subscription debt management that enables them to come up with subscription debt strategies specifically made around customer segmentation such as high-risk customers will be given extra reminders and follow-ups to ensure they are keeping up with their unpaid subscription invoices for the company’s subscription revenue optimization. Such customer profiling for subscription debt management also benefits subscription companies in formulating flexible payment options that can further facilitate the users, such as early payment discounts for high-risk customers or grace periods for users that usually pay their dues on time, as reports suggest that customer’s concerns are 60% more likely to be understood through customer segmentation in subscription debt management.
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Monitor Key Metrics
Multiple vital metrics can help subscription companies keep track of their collection performance for efficient subscription debt management. These metrics are based on various data sets obtained through consumer behavior and the financial history between the debtor and the subscription business. Some of the metrics for high-volume subscription debt that can be used to create a user-friendly experience include the following:
Churn Rate:
The rate customers cancel their subscriptions is termed churn rate. High churn rates are harmful to a subscription business, especially in the case of subscription debt management, as they indicate that more people are leaving the platform without paying their subscription service fees.
Monthly Recurring Revenue (MRR):
The revenue generated monthly through the subscription payments made by the users is termed Monthly Recurring Revenue (MRR). A higher MRR could enable the subscription business to optimize its operational costs without severely impacting its cash flows.
Average Revenue Per User (ARPU):
The average monthly revenue collected per subscriber is called the ARPU. A lower ARPU indicates that the subscription business would face challenges in subscription debt management due to resource shortages and declining cash flow.
Collection Effectiveness Index (CEI):
The percentage of debts the company collects as subscription debt recovery over a specified period is termed the Collection Effectiveness Index (CEI). A higher CEI would indicate that the subscription payment handling being implemented by the subscription company is providing optimal results in subscription debt management.
Proactive Communication
In the case of recurring payment issues, one of the best subscription debt strategies is to ensure proactive communication with consumers across all channels.
Providing proactive debt recovery solutions through active communication is vital to subscription debt management. Statistics show that 85% of customers expect proactive communication from businesses. This demand is due to early engagement with the debtor for subscription payment handling, which ensures timely subscription debt recovery and enhanced customer awareness. Through proactive communications, businesses can improve their cashflows by offering customized payment solutions that reduce delays and encourage early payments.
Flexible Payment Options
One key aspect of efficient subscription debt management is providing flexible payment plans to subscribers in case of pending invoices. Customers are more likely to continue with their subscription services when provided with flexible payment options.
Such efforts can help reduce the churn rate while enhancing customer relationships, as subscribers feel a sense of empathy from the subscription company in times of financial instability. For subscription revenue optimization, flexible payment plans can ensure faster recovery rates with enhanced debt management, as customers are prompted to clear their debts early.
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Outsource Collection Agency
Subscription companies may face difficulty in subscription debt management for two main reasons. Either they can’t recover high volume subscription debt through their limited in-house resources or due to their limited experience in subscription financial management.
Third-party subscription debt management can help such companies on both ends as they have more resources required for subscription revenue optimization and the relevant experience that, in turn, helps them provide their clients with proactive debt recovery solutions. Subscription debt recovery agencies can also allow subscription companies to focus on their core responsibilities while maintaining customer relationships throughout their subscription debt management.
What Are the Challenges in Subscription Debt Management?
The subscription market is constantly moving and evolving, with subscribers looking for the services that best suit their needs. With millions of subscription companies available to users at any instant, it can be hard to stay ahead of the curve, especially when dealing with subscription debt management. With such a competitive market space, here are some of the challenges that are being faced by subscription companies when dealing with high-volume subscription debt:
High Churn Rates
When it comes to subscription debt management, high churn rates can be tedious, especially when dealing with high-volume subscription debt, as it would indicate that more customers are leaving the subscription services without clearing up their pending invoices. Such implications would result in a higher probability of bad debt and cash flow disruptions.
These variations can result in the subscription company’s inability to meet its financial obligations and provide the necessary debt recovery solutions for subscription debt management.
Customer Retention
One of the most significant pain points for subscription companies in maintaining good revenue cash flow is how to keep customer retention. And the same can be said for efficient subscription debt management in subscription companies.
Lower customer retention would mean the subscribers are either unsatisfied with the subscription services being provided or find better value elsewhere, which results in companies increasing their customer acquisition costs and being unable to optimize customer lifecycle management. All such factors end up causing poor cashflows and fewer resources to be allocated towards implementing debt recovery solutions to avoid bad debt in subscription debt management.
Customer Record Management
For a subscription business to keep track of debt collection efficiently, it’s essential for them to have an optimal customer record management (CRM) system and handle subscription collections for failed payments. This is especially vital for efficient debt recovery solutions in subscription debt management. Without accurate data on what debt needs to be collected and where the debt recovery solutions are required, the debt collection process could become inefficient and cause the company to fall behind its benchmarks.
Payment Failures
Customers’ inability to pay their subscription fees effectively through the payment portals could be due to technical errors or system problems. Such errors can cause significant revenue loss and poor user experience. These errors could branch out to multiple issues for debt recovery solutions in subscription debt management, as the subscription company would have to deal with higher accounts receivable, resulting in bad debt.
Fraud Prevention
Cyber-attacks and payment frauds have been at an all-time high, with reports suggesting that around 54% of CEOs are concerned with real-time payment frauds. This has a direct implication in subscription debt management through fraudulent subscription cancellations, account takeovers, false decline, subscription abuse, and much more, as they can disrupt the regular payment cycles, leading to financial losses and bad debt and impacting financial stability.
With the world moving towards a subscription-based era, CollectCo
offers industry-leading subscription debt management and recovery solutions to boost your revenue and mitigate the risk of bad debt. Contact CollectCo today to start optimizing subscription revenue.