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Navigating Cash Flow Challenges: Insights from a SaaS CFO

Read an interview about cash flow with Younium CFO and Partinc co-founder, Johan Castevall.
Emelie Linheden
By Emelie Linheden on June 29, 2023
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4 trends that improve your cash flow
Importance of cash flow management: Enterprise vs startups
Ready to take the plunge?


Today, as Software-as-a-Service (SaaS) companies navigate uncertain economic conditions (including interest rate spikes), cash has become expensive. 

But there is no cause for panic. Just be prepared to maintain healthy cash flows (with an eye on earnings and expenses), and your business will surely weather the financial storm 

To provide valuable insights on this burning topic, we’ve had the privilege of sitting down with Johan Castevall, Chief Financial Officer (CFO) at Younium & SaaS Investor, Partinc Capital. 

Johan has more than 15 years of experience in a variety of management roles at fast-growing SaaS and technology companies. In his role as the CEO, he is credited with getting Swedish tech company XMReality listed on Nasdaq First North. He has been the CFO at Younium since 2021. And, he has co-founded the investment company Partinc Capital which focuses on scale-up investments in Europe. 

A seasoned expert in cash flow management within the SaaS space, he started the interview with a nod to the ‘funding winter’, a situation in which SaaS companies just cannot afford to chase growth anymore without any regard to associated costs. 

“Rising interest rates are driving down the value of your future cash flows. In turn, investors are less willing to pay for a share of your SaaS company today. The answer to this conundrum lies in better management of your cash flows. This is the best way to reduce cash burn and avoid drastic cost-cuttings or business insolvency” he added. 

Read on, as in this in-depth interview, Johan delves into the art of cash flow management and unravels the strategies that can be employed to ensure financial stability. 


4 trends that improve your cash flow 

Cash is king. As a growth company, you need cash to grow. But what if there is a significant strain on your cash flows? 

We asked Johan about what SaaS businesses can do when faced with cash flow constraints induced by reduced funding opportunities, reduced customer demand in a slowing economy, and rising labor costs. 

To that, he answered, “If you are worried about burning through your cash runway too quickly or getting a raw deal on your valuation, it is key to establish cash flow efficient finance operations. And, by that, I mean ensure very smooth processes from order intake to billing, invoicing and dunning.” 

Apart from championing greater control over cash flows, he also firmly supports the idea of securing a 360o view of the cash flow process and strive for levying upfront payments from clients.  

Let's dig deeper into these tips, that Johan shared, for SaaS businesses to improve cash flows in today’s economic climate: 

  1. Automate cash flow operations: It's important to try to get the cash into your business account, as soon as possible. But one of the biggest barriers in cash flow management is that it takes too long to manually invoice each client for their subscriptions. 

    To battle this issue, Johan suggests a subscription management tool that can automate cash flow operations. This will speed-up the billing and collection of payments.

    “Choose a solution that also offers an automated dunning process, so that it becomes easy to remind customers to pay, if they delay payments,” he added.

    He also pointed out that most sales teams tend to struggle with the administrative work involved in the quote to cash process. 

    “A subscription management software that seamlessly integrates with your CRM, ensures that cash flow processes that ordinarily take a few days are completed in just a few clicks. You will also find that such platforms help identify changes (e.g. uplifts) and smoothly update orders accordingly,” he said.

    By achieving cash flow-efficient operations, you can free up cash for certain strategic investments like scaling your business to new geographies. 

  2. Negotiate upfront payment: For SaaS companies with growth ambitions, upfront billing can have a significant impact on cash flows.  

    Cash, from each order that you raise a bill for, makes for the most important asset on your balance sheet together with your intangible assets intellectual property. It's where you really secure support from your customers to grow.  

    “Especially if you are a traditional IT software company that is transitioning to the SaaS model, it would help to start billing when the subscription billing period starts. In fact, it would be best to bill before the start of the upcoming billing period so that you have cash in the bank when the subscription period starts. This also means that, if customers don't pay on time, you have the option to shut down the service,” said Johan.

  3. Build flexibility into your customer relationships: Sometimes your customers may ask for quarterly billing instead of annual billing, because they want a more flexible payment plan that protects their cash flow.  

    On this note, Johan said, “This could have a significant impact on your cash-flow and it needs to be considered carefully. If you managed to sign the customer contract with annual upfront billing the baseline is to stick to the agreed contract. At renewal, if for whatever reason a rare exception is to be made, any adjustment on the billing term to a shorter term should come with some kind of service in return such as committed uplifts or longer subscription periods.” 

    Depending on your existing assets this loan can attract a 10+ % interest. That is an extra cost to the company that you maybe did not consider when you first agreed on an annual billing model with the customer. 

    Johan believes that such well-planned negotiations will make for a happier customer, increase the probability of getting paid on time. Preparation of renewals are even more important than before, such well-planned renewals will sustain customer satisfaction and increase the probability of getting paid on time. 

    Johan pointed out that in such cases, it is helpful to have a subscription management system in your tech stack. This empowers your team to accurately and efficiently incorporate changes in the contract without the risk of errors creeping in.  

  4. Continually analyze SaaS metrics: Overseeing cash flow, working capital, and liquidity is a key role of CFOs. To calculate cash in, you need to measure and track your billing and payment patterns. And to calculate the cash runway, you need to keep tabs on the cash out.  

    “If you have a full and updated picture of operating cash flow metrics (a 360o view) relevant to your business goals, it's possible to address shortcomings and expand on strengths,” said Johan.  

    Some of the key metrics he recommends SaaS businesses track include: 

    a) Days sales outstanding (DSO)
    b) Days payable outstanding (DPO)
    c) Operating cash flow margin
    d) Forecast variance
    e) Invoices overdue
    f) Credit losses
    g) Free cash flow (FCF)
    h) Cash flow coverage ratio (CFCR)
    i) Cash conversion cycle (CCC)

    Johan also said that continuously forecasting customer payment patterns is great because it offers a ‘reference value’.  

    “When you monthly or more frequent estimate your future sales and expenses, you stand to gain a better view of whether there is enough cash to run the business or expand it, or whether you need to raise more funds,” he added.

To forecast cash flows and run agile and optimized cash flow operations, Johan recommends building a single source of truth or a 360o view of cash flows by pulling data from your subscription management systems and other financial systems.  


Importance of cash flow management: Enterprise vs startups 

Accountants and finance personnel, at smaller SaaS companies, still love working on their spredsheets because they are so used to the application’s UI and workflows. But, it's not good enough for more business-critical tasks such as cash flow management or forecasting subscription revenue. 

Johan believes that growth-led companies must move their subscription based data from Excel into a flexible subscription management software (like Younium) that offers greater automation, reliability of data, collaboration with other systems and departments, and data security. 

This system will sit in your finance stack to help in the following ways: 

  • Improve productivity: Avoid wasting time on repetitive cash flow operations, such as inputting billings or receivable data or sending payment reminders. Subscription management software integrates with tools, such as Stripe, so that you can receive cash faster.  
  • Improve flexibility of portfolio management: Subscription management software helps sort through the client list to identify the high-value customers that have more demanding requirements such as flexible payment terms, so that you can keep nurturing those relationships.  
  • Aid in collecting more cash: With automated invoicing flows and dunning, you get paid on time, which means fewer instances of unpaid receivables. 
  • Improve visibility of future cash flows: If you know what the future expenses and billings are, it becomes possible to manage the cash runway better. This means you will need to depend less on expensive financing options. 

 If improved efficiency (e.g. saving one day in the cash flow cycle) for a small company is a huge deal, for a large-sized company it's worth a whole lot more.  

Johan says that typically, big customers know the upside of subscription management already. It's the smaller businesses that need to start early and make cash flow management a part of their stack.  

“SaaS entrepreneurs, who have (let’s say) been working 80 hours a week for around three years and are now at an ARR of Euro 3 million, are just waking up to the realization that they need to do something about improving their cash flows,” he added. 

Ready to take the plunge? 

SaaS businesses, big or small, with good cash flows and an eye on sustainable profitability are more likely to survive this period and emerge stronger for it. And subscription management solutions are the key to achieving this state of being. 

To this end, Johan dissuades companies from trying to build their own platforms. Instead, he recommends adopting a third-party subscription management solution. 

“Start with performing intensive research on the subscription management solutions available in the market. You could rate and compare them based on features such as cash flow forecasting, dunning, integration capabilities, data security, and proactive customer support,” he suggested, “And post-purchase, to improve technology adoption rates, be sure to run change management programs that build confidence in and familiarity with the software, across the organization.” 

Have a few more questions about the solution? Click here to see examples of how subscription management solutions, such as Younium, can support your SaaS company in its pursuit of financial success. 

Published by Emelie Linheden June 29, 2023
Emelie Linheden

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