A Complete Guide to Cash Flow Management for B2B SaaS

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What’s the Importance of Cash Flow Management for B2B SaaS?

How Can a SaaS Business Become Cash Flow Positive?

How Long Does it Take to Become Cash Flow Positive?

Which SaaS Financial Metrics Should You Track for Better Cash Flow Management?

What is the Role of Automation and Technology in Improving Cash Flow?

What are Some Practical Tips for Cash Flow Management for B2B SaaS

What is the Correlation Between Cash Flow Management and the Contract and Pricing Terms?

How Can Younium Help with Cash Flow Management for B2B SaaS Businesses?

FAQ

Conclusion

For the longest time, all B2B SaaS companies and investors cared about was growth, at any cost. So much so that there were barely any discussions around liquidity or cash flow management for a B2B SaaS business. 

Since the past two years, though, this trend has turned on its head. And effective cash flow management has emerged as a marker of business stability. After all, only if you have more cash coming in than going out can you cover expenses and grow. 

The existing macroeconomic uncertainties, intense competition for business funding and high valuation, and a greater focus on efficiency over growth, are considered the causal factors for this paradigm shift in financial operations. 

In a recent webinar, we spoke with Johan Castevall, Chief Financial Officer of Younium, and Co-Founder and Partner at Partinc Capital. And here are some of the key cash flow-related takeaways:

• To run a successful SaaS company, never lose sight of cash-in and the efficiency of the order-to-cash process.

• If you are a cash-flow-positive company, you get to decide your destiny.

• A decent cash flow for B2B SaaS companies in today's economy is the key to a seat at the table with investors.

• Never miss another subscription billing, renewal, upsell, or cross-sell opportunity with cash flow automation features. 

• Adopt a subscription management platform, with dashboards that enable easy access to up-to-date cash flow/SaaS financial metrics (such as ARR). And remember to act on these insights swiftly.   

Be it in the boardrooms or discussions with VCs, cash flow planning is all anyone can talk about these days. But, what exactly is in this for you?

What’s the Importance of Cash Flow Management for B2B SaaS?

• First off, the obvious: only if your business has cash can you pay the daily bills, employee salaries, and eventually your investors. 

• Secondly, good cash flows are what will empower you to take charge of your business’s destiny, with little or no intervention from the board.

• Additionally, effective cash flow management for B2B SaaS companies helps build resilience during unpredictable revenue cycles.

• Moreover, with solid cash flow management for B2B SaaS, you have the confidence to make timely and proactive investment decisions for growth.

• Last, but not least, Johan shared, “You can bank on a decent cash flow, in today's economy, to also snag you a seat at the investor's table”. 

How Can a SaaS Business Become Cash Flow Positive? 

A good growth rate decides the ARR multiple, and hence the valuation of the company. 

But while growth (or scaling your business) is an important driver of the valuation, Johan cautions against losing sight of the cash-in and the revenues. 

So, the first step in cash flow management for B2B SaaS companies is to have a finger on the pulse of how efficiently the business is converting closed deals into cash. To this end, he recommends securing a deep understanding of customer payment terms and payment patterns.

Next, you need to use this information (and other financial metrics) to improve cash-in and revenues.

Johan added that cutting costs is easy. But, building an efficient order-to-cash process is very tough. On this note, he shared, “While it's great to be able to keep your business as lean as possible (eliminating unnecessary expenses), do so without jeopardising your ability to keep up with competition.”

How Long Does it Take to Become Cash Flow Positive?

The ideal time period for companies to try to reach a cash-positive state is within five to seven years from the date of inception.

But, this is not a rule written in stone, as Johan added that the time it takes to become cash flow positive tends to depend on the company’s growth journey and owners’ agenda. 

Side note: Experts at McKinsey believe that ideally, the sum of a SaaS company’s growth rate and its free cash flow rate should be 40% or more.

Which SaaS Financial Metrics Should You Track for Better Cash Flow Management?

We asked Johan about the metrics he finds most critical from a cash flow management perspective. And he recommends that SaaS businesses focus on two major KPIs.

1. Track and compare the contracted annual recurring revenue (CARR) value for 12 months with the rolling 12-month cash-in, so that you can vet the quality of the deals that you are signing on.
2. Track days outstanding (DSO) to assess how late the customers are paying for their subscription. “This information will help you set up a process that ensures that as soon as overdue invoices reach a DSO limit, you take action and not let it pile up,” he said. 

There is no better way to manage these cash flow KPIs than by harnessing a powerful B2B subscription management solution, such as Younium.

In the next section of this article, Johan outlines how such platforms optimise and automate your cash flow management processes.

Also Read:

• What is SaaS Analytics and Which Metrics Should You Track?
• Subscription Metrics Part 2: Difference between MRR & CMRR?

What is the Role of Automation and Technology in Improving Cash Flow?

• Offers access to up-to-date and accurate SaaS financial metrics: With a smart subscription management platform, it is possible to have all the key cash flow-related metrics at your fingertips. Johan also shared that cash flow forecasting (at the click of a button) can help you meet varied cash flow targets, in different circumstances. Such information is crucial for strategic decision-making that aids in better control of the movement of cash-in and out of your business.

• Optimises the cash-to-order workflow: Your small to mid-sized SaaS companies (with ARR of €1 million to €3 million), may be forgetting to send invoices or missing upsell and renewal opportunities due to the lack of a 360o view of the client contract. To counter this issue, Johan recommends using a subscription management solution that can optimise the order-to-cash process, thus growing account value and preventing revenue leakage. This includes auto-detecting and shooting out reminders to activate upsell or renewal workflows. 

• Automates routine tasks: When customers delay payments, your organization usually needs to take some action to get paid. But what should that action be? 

Johan believes that this decision is difficult to take since there usually is a communication gap between sales and finance. But with automated technologies in place, you can decide on the action, execute it, and then communicate it organisation-wide with greater ease. 

Meanwhile, automation of the dunning and invoicing process means fewer instances of unpaid receivables.

Therefore, Johan recommended that SaaS businesses choose a flexible solution that integrates to their CRM “for smooth handover to new orders”, while also integrating with PSPs and third-party dunning platforms.

You should also consider using the following AI technologies to further improve the operations of your SaaS business:

Also Read:

• AI in Subscription Management: What It Is and Why It Matters
• How to Use AI for SaaS: Use Cases & Best Practices

What are Some Practical Tips for Cash Flow Management for B2B SaaS

• Implement upfront invoicing, preferably for 12 months, to improve cash flows and eliminate concerns of customers defaulting on the payments. 

• Ensure that subscription discounts on offer are for a limited time period. This way, you can make sure that the discount meets its objective, and does not cause the business to hemorrhage money unnecessarily (post that set period).

• Enable auto-renewal of contracts. This ensures there is on-time SaaS subscription billing once the new contractual period begins.

• Add payment gateways integrations to your online sales solution to enable credit payments. This helps you secure payments upfront. And it is especially useful if you're selling to the US, as customers there are happier to pay bigger sums by credit cards. 

• Review your internal handovers from sales to order administration (for customer service) or finance to customer service (for cash collection). Ensure that the handover is clear and efficient, with correct VAT codes included, to avoid postponing subscription billing. Also, review dunning processes so that you know if people are executing it well. 

• Diversify your customer base. Do not be too heavily dependent on a few big customers, especially in your early growth stages, your cash flows could get impacted if they stop payment. So, to hedge against such risks, keep adding trusted customers to your portfolio.

• Look into other revenue streams (say professional services) that align with your goal of having happier customers. After all, happier customers buy more and grow their dependence on your offerings, which increases net retention.

What is the Correlation Between Cash Flow Management and the Contract and Pricing Terms?

Johan believes that cash flow management for B2B SaaS businesses and contractual terms are deeply interlinked. He said, “If you're missing out on a solid legal contract structure in your customer agreement, you're adding risk of misunderstandings or expectation management issues arise. And, as soon as anything is up for interpretation, payments end up getting delayed.”

This is why your sales, finance, and customer success teams need to work together to review the contract structure. And then, you must offer clear communication around the contract terms in order to set customer expectations. This will ensure that the customer at least pays the initial invoice. 

And when it comes to invoice payment, he recommends defining the pricing models/strategy, growth tiers, and identifying price drivers that enable you to increase the subscription value. In this way, if the customer is growing, your revenues also grow with it. 

Also Read:

• The Future of SaaS Pricing: Finding the Right Model for Growth
• Transparent and flexible subscription pricing

How Can Younium Help with Cash Flow Management for B2B SaaS Businesses?

Younium is a one-of-a-kind subscription management ‘hub’ built with the purpose of supporting B2B SaaS companies. Here is how it can be your close aide in navigating cash flow struggles:

• Offers greater control over more advanced customer subscriptions by acting as a single source of truth, thanks to our advanced APIs and connectors. This means you gain access to accurate and up-to-date SaaS financial metrics and KPIs, from varied sources, for better cash flow management.

• Automates activities such as subscription billing, invoicing, and dunning, so that you may avoid wasting time on repetitive cash flow operations – and get paid on time.

• Supports cash flow and revenue forecasting so that you can manage the cash runway better. 

• Helps you identify the high-value customers, so that you can nurture those relationships, with on-time upsells, renewals, and billing.

Younium helps you track key revenue and cash flow metrics and even make accurate forecasts.

Image via Younium

“If you look at the typical technology ecosystem, we usually fit right in the middle of the CRM system and the financial platform. And in some cases, we also connect with your own SaaS service,” said Johan in conclusion. 

Watch Younium in Action here to figure out how we can help you with building a cash-rich SaaS business. 

FAQ

1. What should a B2B SaaS cash flow statement look like?

A B2B SaaS cash flow statement typically follows the standard three sections: operating, investing, and financing activities. 

It must detail subscription revenues, customer payments, recurring billing cycles, and any delays in receivables. Additionally, it should reflect outflows such as payroll, software costs, and marketing expenses.

2. Are there any strategies for cash flow management for B2B SaaS businesses?

Yes, several strategies can improve cash flow management for B2B SaaS firms. These include implementing upfront annual billing, reducing churn, offering discounts for early payments, and automating dunning processes. Forecasting cash flows using real-time SaaS metrics is another critical strategy.

3. Can automation enhance cash flow management for B2B SaaS firms?

Absolutely. Automation enhances cash flow management for B2B SaaS firms by streamlining subscription billing, invoicing, and payment follow-ups. It reduces human error and ensures that no revenue opportunity, like renewals or upsells, is missed.

4. What are the common challenges in cash flow management for B2B SaaS firms?

You can face cash flow management challenges like late payments, high customer churn, complex billing structures, and misaligned sales-finance operations. Without proper tools, these issues can hinder accurate revenue tracking and forecasting.

5. What are the best practices for cash flow management for B2B SaaS startups?

Startups should prioritise setting up clear invoicing cycles and adopting annual upfront payments to boost cash-in. It’s also essential to regularly review SaaS financial metrics.

Conclusion

Cash flow management for B2B SaaS companies involves much more than just tracking income and expenses. It’s a way to optimise your entire financial process. 

Businesses that fail to prioritise this aspect often face stalled growth or financial instability.

Thankfully, automated platforms like Younium offer features for optimising cash flow by integrating billing, CRM, and financial tools for better visibility and control over both cash inflows and outflows.

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