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Poor data management leads to messy, error-prone data and unreliable insights. Finance teams struggling with these issues wind up left in the dark, and businesses lose their advantage over competitors and are more likely to take actions that will hurt the bottom line.

Companies must maintain a high data management standard to ensure that leadership can adequately guide the company in making sound financial decisions and remain compliant with accounting and data protection regulations.

This blog will introduce you to ten best practices in data management for finance teams so that you can harness the power of data analytics.

Interested in a specific aspect of data management? Click on the best practice below to skip ahead. 

  1. Define your data management strategy and protocols
  2. Use data to build behavioural models and forecast outcomes
  3. Be selective in what you’re measuring
  4. Remember to account for data biases
  5. Establish access levels based on projects, job roles, and functions
  6. Back up your data and have a disaster recovery plan
  7. Prioritize data security
  8. Create a culture of compliance
  9. Curate an in-house team of data analysts
  10. Don’t keep your data in silos

1.) Define your data management strategy and protocols

It’s much easier to spot and correct problems early on with a well-structured framework for data management and analysis. To garner better insights, your organization must have clear workflows detailing how to handle data for each of the five steps of data analysis; data definition, collection, cleaning, analysis, and application.

The five-step process of data analysis

Below are some sample data management workflows covering the five steps of data analysis:

 

2.) Use data to build behavioural models and forecast outcomes

One of the most valuable applications of data is predictive analytics. This information is vital to creating an action plan for proactively responding to threats and opportunities. Companies can build customer behavioural models with today’s technologies and reliably predict future outcomes.

For example, say you want a good idea of when a customer will pay their due invoice. A robust data management system will enable your team to analyze past payment trends, compare them with other customers, and build a forecast model to determine when that customer will most likely pay their balance. By harnessing these insights, you can build reliable customer aging reports and inform dunning policies to maintain positive customer relationships and reduce involuntary churn.

3.) Be selective in what you’re measuring

You’ll gain reliable insights from nothing if you try to track everything. While it’s very tempting to maximize your usage of every available feature and collect every fragment of data, you’ll only burn through your resources and become too distracted to find information to answer your initial query.

After all, good data management is about enforcing the seven standards of reliable data:

 

This best practice is similar to the first step of data analysis, but you apply it to your entire data storage system. First, understand which metrics you want to track. Then, identify your search parameters and the variables that impact those metrics. After completing these steps, you can collect the necessary data to build your model.

4.) Remember to account for data biases

Beware of data biases! Bias is introduced to data when an error causes certain dataset elements to be over-weighted or overrepresented. Common examples of data biases include:

 

If leadership transitions from intuition-based to data-driven decision-making, they need clean data, or they could make a bad decision that harms the bottom line. Data analysts must note the different biases at each data management and analysis stage. Finance teams can even use AI and machine learning to help check data sets and flag potentially biased data to help raise awareness to leadership.

Common sources of bias in data analysis

5.) Establish access levels based on projects, job roles, and functions

A common problem with poor data management is that team members lack access to necessary data. Leadership may be unaware that certain information already exists because the data is hiding on their servers and make unwise decisions that could have easily been aided by data analytics.

Of course, that doesn’t mean that everyone at the company should always have access to your company’s financial information. The best course of action is to set up data classification protocols that restrict and grant data access based on projects, job roles, and functions. Another strategy is to implement dashboards that track custom company performance metrics and share them at company-wide meetings.

6.) Back up your data and have a disaster recovery plan

According to Veeam’s 2022 Data Protection Report, the average cost of downtime is $88,000 per hour. While it’s true that number is skewed by larger organizations, that doesn’t mean that it’s cheap inconvenience for small and medium businesses.

Data loss is a distressing, costly event with a plethora of ramifications. Human error, unexpected updates, damage to physical devices like servers, and cybersecurity attacks are all common causes of data breaches and data loss.

The best ways to prevent the more serious impacts of these events are frequently backing up data and having a disaster recovery plan (DRP). A DRP will help to keep business continuity while IT quickly recovers operations, mitigating disruption of product and service delivery.

Essentials of an IT disaster recovery plan

7.) Prioritize data security

Protecting your company’s data must be a top priority for all teams. Financial information is confidential, and a breach could result in reputational damage, lost opportunities, and regulatory fines. Strict security protocols are not optional, and any vendors or partners must adhere to the highest data protection standards.

Investing in scalable security tools that support secure sharing and encrypting data flow is essential. Look for SSL encryption, two-factor authentication, advanced firewalls, and automated notifications for new logins. Hosting security awareness training sessions at least once every six months will help your team stay vigilant.

8.) Create a culture of compliance

Another great way to protect your data is to build a culture of compliance within your company so finance is always audit-ready. Depending on your industry, you’ll also have to adhere to specific data protection regulations. For example, healthcare organizations must have strong security measures to protect personal information and remain HIPAA compliant.

Check in with your risk and security officers about new technology with autonomous data capabilities that can support compliance. An invaluable data management tool is data discovery, a feature that reviews, identifies, and tracks data chains necessary for multijurisdictional compliance.

However you decide to tackle this issue, no software alone can completely guarantee compliance. Your policies must supplement your technologies to ensure that your team and tools are sustainable and keep pace with rapidly evolving accounting standards.

9.) Curate an in-house team of data analysts

Spreadsheets quickly lose their appropriateness as the volume and variability of data increase. Real-time reporting and data mining can only truly be achieved with sophisticated business analytics tools and features with AI capabilities.

More importantly, you’ll need a dedicated team of data analysts trained on these latest technologies to enable prompt and accurate insights. Upskilling your existing talent on the finance team will help them become better data managers and result in better forecasting for cash flows, tax liabilities, and revenue growth.

10.) Above all, don’t keep your data in silos

A data silo is an archive controlled by a single entity or is otherwise isolated from the rest of the organization. These repositories crop up in many ways, from files to emails to entire servers, but all share the same trait of hiding potentially vital information.

To gain a full view of your business metrics and understand your financial health at a deep level, your data must be accessible, and your models must include data from different sources. Unstructured, decentralized, and unshared data often cause problems and undermine the rest of the best practices written about in this blog.

Problems caused by data silos

If you can only implement one change to your existing data management—abolish the data silos. Whether you need to integrate a legacy system or clean excess raw data, obtaining an accessible and unified data set is worth it.

Further resources for improved data management

If you’re looking for more information about data management or have a specific question in mind, feel free to browse the resources listed below or contact our team. We’d love to hear from you.

Automate transactions | financial consolidation guide

To succeed in the hospitality industry, companies must continue to exceed customer expectations while simultaneously executing plans for rigorous expansion. However, this is only made more difficult by the host of modern challenges businesses must face. From stressed-out and understaffed teams to budget constraints and poor data management, finance departments are being pushed to the limit where even high performers are struggling to keep up.

That is why many companies are in the process of undergoing a financial transformation. Implementing technology to automate and streamline operations is vital to supporting staff members in delivering quality customer service.

Modern challenges hospitality faces

Within the hospitality industry, financial transformation consists of adopting an agile mindset and upgrading to a cloud-based financial management system to streamline workflows, enhance productivity, and impact the bottom line. Often companies will implement a comprehensive enterprise resource planning system (ERP) to optimize operations and centralize crucial information.

By transforming financial management processes companywide, leadership can access strategic forecasting and achieve even the most ambitious expansion plans. Download our whitepaper for an in-depth exploration into how financial transformation can enable long-term, sustainable growth within the hospitality industry, complete with a modern-day case study, checklists, and statistics.

The CFO’s playbook for hospitality transformation

When companies struggle with a pile-up of outstanding invoices, they often suffer from poor cash flow management and strained customer relationships. That’s why accounting departments need to pay close attention to due payments. A key component of maintaining efficient credit policies is a customer aging report. This document provides insight into customer behaviour and supports a phased approach to collecting the total due from your customers while minimizing bad debt. This blog will introduce you to the benefits of a customer aging report and reveal why it’s a good idea to automate it.

What is a customer aging report?

A customer aging report, also referred to as an accounts receivable aging report or receivables aging, shows the outstanding balances from customers sorted by time intervals. These time intervals are called aging periods, so the longer a customer owes an overdue amount the more their balance ‘ages’.

The standard aging periods used in customer aging reports

 

What is the purpose of a customer aging report?

The customer aging report is one of the main reports used to reconcile the customer ledger with the general ledger. It aids accounting teams in analyzing the efficacy of credit and collection functions and identifying any hiccups in the collection process. Below outlines four of the benefits of using a customer aging report.

1. Develop a better understanding of cash flow

According to a study by U.S. Bank, 82% of all companies fail because of cash flow mismanagement. A large component of maintaining strong financial health is ensuring that your customers pay you on time. Customer aging reports allow you to spot and correct credit risks before your cash flow spirals out of control.

2. Maintain better relationships with customers

In some cases, the reason why you don’t get paid on time is simply that your customer is on a different pay cycle than what your business offers. Customer aging reports help you to identify issues early, so you can act fast to rectify the situation and retain positive relationships with customers.

Whether that ends up being a quick fix, like realigning your invoice date alerting mechanism, or a longer conversation that involves following up on routine customer behaviours, you’ll have the opportunity to improve your collections strategy and customer service.

3. Inform credit policies

Customer aging reports help evaluate the efficacy of your credit policies. If most of your overdue payments result from one customer’s tardiness, you might consider withholding any additional credit.  However, when multiple customers are lagging on their payments, it could indicate that it’s time to audit your processes as there may be an underlying issue with your credit policy. Implementing a discount for early payments or charging fees for late payments are two strategies that may be necessary to streamline cash flow.

Further reading: The ultimate ERP requirements checklist and template

4. Reveal doubtful debts and average collection period

A customer aging report is valuable for calculating your doubtful debt allowance (DDA) and average collection period (ACP). Doubtful debts are balances owed by customers where it’s implausible that you will receive the overdue amount, resulting in bad debt.

The DDA is the acceptable value of bad debts to be written off in your company’s financial statements during the period ends. The ACP is the average number of days it takes for accounts receivable to convert to cash and is one of the main parameters used to determine a company’s short-term liquidity.

 

4 steps to create a customer aging report

Here is an outline to compile a simplified customer aging report using a spreadsheet:

  1. Create a spreadsheet with all overdue invoices broken down by customer, invoice date, invoice number, original monetary amount, and unpaid balance.
  2. Add a column for each aging period. You can add as many aging periods as needed. If you need a place to start, include the standards intervals: 0–30 days, 31–60 days, 61–90 days, 91+ days.
  3. Group each invoice into an aging period by copying the unpaid balance into the relevant column.
  4. Add subtotals for each customer and a grand total at the bottom of the document.

Example customer aging report

How to calculate doubtful debt allowance

Given that the probability of defaulting increases with the time an invoice has been overdue, leadership can assign incrementally higher fixed default percentages to each aging period. These percentages are often determined by analyzing historical data to see how much was uncollectible during previous aging periods. Applying these percentages to the current value in each aging period and calculating the aggregate returns the expected credit loss, which the accounting department books as the DDA.

Example | DDA calculation for Company A

Using the example above, Company A reviews its customer aging report to calculate its DDA. They have $4,000 of accounts receivables overdue for less than thirty days. Company A usually has high collectability for this aging period and assumes that none of the accounts will be doubtful.

Based on prior experience, the likelihood of default increases by 2% for every additional thirty days the invoice remains outstanding. Company A applies the following formula to determine its allowance for doubtful accounts:

Doubtful debt allowance = (0% x $4,000) + (2% x $7,000) + (4% x $9,000) + (6% x $3,000) = $680 

Therefore, the DDA for Company A is equal to $680.

Calculating the doubtful debt allowance for example

How to calculate average collection period

Calculating the average collection period can help you to evaluate your business’ collectability performance and minimize long overdue receivables. The ACP is the difference between the days sales outstanding (DSO) ratio and the credit period given to your clients.

ACP = DSO – Credit days 

The DSO ratio provides the average period between when a sale is closed, and the client settles the amount. The DSO ratio can be calculated using the following formula:

DSO = (Average receivables / Credit sales) x Days in period 

If the terms vary greatly between customers, you may need to calculate multiple ACPs for each type of contract.

 

Harness the power of automation to streamline your finances

As your company scales, you’ll require a system that can keep up with your expanding customer database and support best practices in data management. Investing in an ERP solution will allow you to upgrade from spreadsheets. By automating processes like customer aging reports, you can significantly reduce human errors from manual data entry, time spent on redundant tasks, and overhead to achieve a positive impact on your bottom line. If you would like to learn more about how financial transformation can benefit your business, check out our whitepaper.

Finance leaders playbook CTA | retail expansion

 

The hospitality industry is currently undergoing a resurgence as more businesses bounce back from international market disruptions and supply chain issues. The global market value is expected to reach $6715.27 billion in 2026 at a compound annual growth rate (CAGR) of 10.2%. Positive projected growth means that businesses are going to require technology and tools now more than ever before.

Financial management software leverages the latest innovations to streamline accounting processes, allowing companies to smoothly navigate common challenges like cost pressures, staffing, and preventing project overruns. But how do you know which solution will work for your business? Which features are necessary across the board for hoteliers, restaurateurs, and travel agencies?

This blog will walk you through seven features you need to prioritize in your next hospitality financial management software upgrade. However, if you’re looking to take your financial transformation one step further, this blog will provide you with the ultimate guide to choosing an enterprise resource planning (ERP) system.

1. Cloud-hosted data management

According to Gartner, by 2024, more than 45% of IT spending will shift to the cloud. This will include financial management and accounting software in many cases, so take advantage of mature software architecture that boasts multitenancy and cloud computing. These advancements allow your company to minimize errors and streamline data management with master records that update in real-time, significantly reducing turnaround during month-end and year-end.

Further reading:

2. Comprehensive reporting capabilities

With data at your fingertips, comprehensive reporting transforms numbers into actionable outcomes. AI-based predictive analytics, dashboards, and rolling forecasts enable you to optimize cash flow, improve financial controls, and assess the overall health of your business. When you’re empowered to make data-driven decisions, your company can benefit from improved agility to quickly adapt to an ever-changing landscape.

3. Flexible billing and pricing management

Tools that support customizable billing options and quick pivots in your pricing strategy are indispensable components of thriving in a rapidly changing industry. Some leading companies are turning to subscription billing options to overcome massive disruptions. If your business is also considering introducing a subscription service, you’ll likely need to experiment with different pricing models and billing frequencies before finding the right fit.

Further reading: Whitepaper | The CFO’s playbook for SaaS transformation 

The complete guide to subscription management

4. Optimized supply chain and inventory requisitions

Manually tending to inventory management can waste valuable time and resources, and full visibility is necessary to overcome global supply disruptions. The right software will facilitate process automation, yielding rapid improvements to order fulfilment, receipt of goods, serial and lot value inputting, batch document delivery, and document consolidation processes.

5. Digitalized lease portfolio

There’s a lot of administrative work involved with managing property, plant, and equipment leases. If you rely on paper-based systems, it will be impossible to scale appropriately. Lease management software can mitigate the risk of several common pitfalls. Digitalizing your lease portfolio prevents lost documentation and helps you keep track of critical dates, so that you never make a late or inaccurate payment.

Complete guide to lease management

6. Enhanced security protocols

Businesses in the hospitality industry often handle sensitive data, sometimes across multiple entities. Therefore, a robust security setup is a non-negotiable feature of your system. Look for software that offers SSL encryption, advanced firewalls, two-factor authentication, and automated notifications for new sign-ins. It’s especially critical that multi-entity companies have a clear organizational structure and can centrally manage security role-based access levels.

7. Industry-specific regulatory compliance

Too often, companies will invent complicated workarounds to try to compensate for a system that can’t keep up with the latest accounting standards. When the average cost of non-compliance is around $15 million, three times higher than compliance, the risk is not worth it. Making it a priority to invest in hospitality financial management software that enables hospitality-specific regulatory compliance can save your accounting department from a financial nightmare and your company from hefty penalties.

Further reading: 

 

Most hospitality companies are fraught with the challenges of effective financial management in a world where disruption is the new normal. Smooth accounting operations are essential for sustainable growth and scalability in this industry. Those that fail to adopt best practices and tackle the issues with lean, agile solutions are likely to be buried by tedious manual processes and an inability to make strategic moves in a fast-paced, constantly changing world.

Making decisions based on gut feelings is no longer viable. With data becoming increasingly crucial for stakeholders and investors, investments now depend on access to accurate forecasting and reports. Risk management is another motivator for those revamping financial systems. No accounting team wants to stifle the growth of their company, yet, modern compliance standards are increasingly demanding, and there’s a degree of transparency required by regulators that is impossible to maintain with outdated solutions.

Many finance teams are weighed down by manual processes, struggling to consolidate multiple entities, keep up to date with leasing requirements, and spend most administrative time on balance sheets and reporting. Often this work involves a degree of correction that should not be necessary when technology can automate many of the workflows that lead to the most common errors on financial statements and reports. Keeping up administrative workloads often leaves little time for teams to adapt to the subscription economy or implement innovative, competitive strategies.

This blog covers the everyday financial management challenges hospitality faces, with simple solutions suggested for each one. Before you jump in, give your finance function a health check with this simple questionnaire.

 

1. Maintaining secure, reliable financial data management across all entities

 

The challenge

Given the sheer amount of financial data flowing through the average hospitality company, it’s no surprise that one of the biggest concerns accounting teams faces is keeping data clean and free of error while maintaining the security of sensitive information. The bigger a franchise or organization, the more complex things can get, with companies needing to adopt systems that can handle the workload of increased intercompany transactions without causing severe bottlenecks.

With data now at the heart of strategic decision-making, the need for effective data management is a critical component of healthy growth. It’s not uncommon for audits or data breaches to slow down productivity for weeks, if not months, a risk most cannot afford to take. Hospitality companies can overcome this financial challenge by introducing several measures to maintain secure, reliable data across all entities and departments.

 

Suggested solutions

 

2. Consolidating financial statements accurately across multiple companies

 

The challenge

Effective financial management in the hospitality industry often requires accounting teams to produce consolidated financial statements that allow leadership to get an overview of overall performance across the entire enterprise. Of course, this ties into the challenge of maintaining reliable and secure data, but it’s a separate concern with its nuances.

Parent company accounting teams often face significant roadblocks when it comes to consolidating financial information. They may not have access to data from all entities, and other groups may forward reports in inappropriate ways (email, excel files, etc.). Not only does this make it challenging to obtain the necessary data, but it can introduce issues of fraud and data manipulation when the parent companies do not have a clear view of financial processes across all entities.

It’s possible to solve this issue by investing in a centralized accounting system specializing in consolidated financial statements. Building a robust financial backbone is essential to sustainable progress when it comes to solving the financial management challenges hospitality faces.

Suggested solutions

 

common challenges of financial consolidation can be solved with Multi-Entity Management

3. Proving compliance with changing global accounting standards

The challenge

Expectations around data governance and global compliance have never been higher. Most hospitality franchises will be subject to different rules and regulations that govern their accounting practices. Staying on top of fluctuating regulations can strain even the highest performing teams, especially when accounting teams need to maintain compliance for everything from recurring revenue and financial consolidation of multiple entities to lease accounting standards.

It can be a headache, so it’s often best to nominate team members to stay on top of requirements, brief the team on any changes and rewrite data management policies to reflect these when necessary. It’s also wise to invest in a solution built to handle the complexities of modern compliance, so your team can avoid the risk of hefty fines.

 

Suggested solutions

 

4. Replacing obsolete, on-premise financial management systems

benefits of financial transformation

 

The challenge

The struggle to achieve financial transformation is not unique to the hospitality industry. Across the world, companies face the challenge of introducing agile workflows and replacing legacy, on-premise systems with more comprehensive financial management systems. Add to this the rate of failure of the average transformation, and it’s no wonder that accounting teams can be reluctant to undergo the upheaval.

Many issues arise because finance manages the entire transformation in a silo, without any effort made to spread the workload across the whole organization. It’s a process that touches on and involves every corner of operations and will require a company-wide effort. The solutions below include a collection of resources to help you navigate the major shifts and challenges of financial transformation.

 

Suggested solutions

financial transformation case study Starboard CTA

Expansion is the new normal in the hospitality industry. With constant disruption, it’s not enough to stay afloat. Yet, hotels and restaurants face a demanding and often fickle customer base and challenges such as escalating operations costs, seasonal demand, and high staff turnovers. So how can anyone expect to expand in such an environment? The answer is simple. They can’t unless they build a sustainable financial framework for growth. Start with accounting processes, streamlining operations, and cutting costs so that expansion plans won’t collapse the administrative side.

With the escalation of customer expectations, few industries face more disruption in the coming years. Pandemics, fluctuating economies, and the advent of new technologies contribute to mass shifts in what customers require. There’s now a sizable difference between the average customer’s expectations and what’s on offer from the average hotel, restaurant, or resort. Financial transformation is key to sustainable expansion, yet many in the industry are reluctant to invest.

Many are wary of financial transformation in hospitality. It can be an expensive and time-consuming process with a low success rate. Yet, wide-scale digital transformation begins with the finance department. Sage recently reported that 70% of CFOs are now responsible for technological change. It is no longer an issue confined to the IT department and needs to be discussed at the highest levels of your organization to ensure longevity.

This blog covers a series of best practices and resources that will help you build the financial backbone necessary for success in the shifting world of hospitality.

 

Below is a list of topics covered. Click your area of interest to skip ahead.

Shifting the focus from expansion to robust financial management

Hospitality faces a significant problem: expand or disappear. Typically, hotels and restaurants will grow in several ways: open new locations, expand to new territories, adopt new ways to deliver services, launch loyalty programs, and create new bespoke services.

5 ways hospitality companies commonly expand

Companies need to implement robust accounting processes that can comfortably sustain future growth to expand sustainably. It’s impossible to accomplish any of your expansion goals without a financial backbone that allows for accurate analysis, reliable forecasting, and timely information. Teams need real-time reporting to support strategic decisions with insights, analytics, and reliable data.

Beyond this, billing is a core component of an industry that often relies on 24/7 booking capabilities. Customers expect billing to be accurate and immediate for hospitality services and anything less than that is not adequate. Expanding operations without the necessary financial tools can be challenging and result in issues with payments and billings.

Other examples of the problems that might surface include fines for non-compliance, bottlenecks, and inaccurate reports. Problems that end up impacting not only your team’s productivity but also the level of customer service you can provide. Hospitality is an industry defined by service, and stressed-out teams will not be able to meet customer expectations, let alone exceed them. After all, this is an industry where exceeding expectations is the hallmark of a good customer experience.

ERP requirements checklist template and downloadable

Defining financial transformation for hospitality

Financial transformation in hospitality relies on adopting cloud-based technology in tandem with an agile mindset and processes to optimize performance, impact the bottom line, and improve productivity across the organization. It often centers around implementing a comprehensive ERP to help streamline and centralize workflows and allow access to crucial information. Its core functionality should be transforming financial management processes companywide to enable strategic forecasting, and allow for sustainable hospitality expansion.

Benefits of financial transformation for sustainable hospitality expansion

The benefits of financial transformation for hospitality expansion are extensive. Some of the core ones include increased agility, better customer service, automation of time-consuming processes, strengthened data security, simplified compliance, enhanced collaboration, and freedom to innovate and expand.

benefits of financial transformation

7 ways leadership can prepare teams for the shift

In a recent McKinsey Global survey, only 3% of the respondents who had begun a transformation in recent years managed to sustain change. That does not mean transformation is impossible; just that many fail to take the necessary steps to ensure success on a journey that will always start with leadership. Sticking to the following tips should help leadership navigate the challenges:

  1. Prioritize clear, regular communication that includes all major developments
  2. Tie key performance metrics to your financial transformation at all levels
  3. Assess digital maturity and adjust strategic plans to improve upon current capabilities
  4. Adopt an agile mindset to encourage collaboration across your organization
  5. Break the process into small, actionable and achievable portions
  6. Build a custom financial transformation roadmap with room for change
  7. Appoint change ambassadors across various departments to lead the charge

 

Checklist of best practices for hospitality transformation

Many hospitality companies outsource their financial transformation, allowing consultants to manage the journey. Although these types of advisors are helpful for identifying solutions and helping identify templates for success, a truly successful transformation begins and ends internally. Not only do you need to engage your team at every level of the organization, but you will need to follow the best practices for financial transformation if you want to build a roadmap to successful hospitality expansion.

Many hospitality companies outsource their financial transformation, allowing consultants to manage the journey. Although these types of advisors are helpful for identifying solutions and helping identify templates for success, a truly successful transformation begins and ends internally. Not only do you need to engage your team at every level of the organization, but you will need to follow the best practices for financial transformation if you want to build a roadmap to success.

 

  1. Establish your position on the digital maturity scale and set goals accordingly
  2. Conduct a thorough audit of your current financial management and workflows
  3. Audit workflows and update data management and security practices and protocols
  4. Educate your team on the financial transformation challenges they will face
  5. Define what success means for your company and set realistic KPIs based on this
  6. Prepare your leadership team to take ownership and drive internal change from day one
  7. Choose a financial transformation framework that meets the demands of your team
  8. Amplify your efforts with a robust internal communications and education campaign
  9. Understand that any major technological change requires a significant cultural change
  10. Invest in scalable financial management solutions that allow for future expansion plans
  11. Focus on cloud-based solutions that integrate fully with your current tools and processes
  12. Shift to an agile mindset and adopt processes that are specific to your industry’s demands
  13. Create meaningful ways to track performance and measure the success of transformation

 

Digital maturity scale for financial transformation

Partner with technology providers that know the hospitality  industry

Finding the right solution can be tricky when many of the larger hospitality companies do not publicize the software and tools that help them succeed. Still, it’s wise to look for teams and consultants that understand the nuances and demands of the hospitality industry. Relevant recommendations should speak to many of the core challenges you’re facing. Even when non-disclosure agreements mean that a consultant can’t share the name of a company or brand, they will still be able to speak directly to how they can support your growth. It should also be possible for you to speak to those they’ve partnered with before and ask questions. Additionally, if you’re speaking with various consultants, it’s wise to have a list of questions on hand.

Recommended questions for technology providers and consultants

 

financial transformation case study Starboard CTA

 

Selecting the right Enterprise Resource Planning (ERP) software is rarely an easy decision, and the biggest mistake most companies will make is rushing into it without first establishing their functional requirements. A slap-dash approach will only end up costing you time, money, and resources. There are a number of downloadable ERP requirements checklists and templates online, but very few of them are useful as they tend to focus on generic features rather than the specific needs of the team that will be using the ERP for years to come.

Best practice is to establish a custom checklist based on your specific needs, that way you won’t end up wasting more money on flashy features that have very little to do with your company’s goals.

This blog will help you build a custom ERP requirements checklist that is right for your company and equip your team with the criteria and questions needed to assess each system and find one that will work best. You can also download this free ERP functional requirements checklist template, to explore the top features and get started.

 

Core topics covered in this blog (skip ahead by clicking on a topic) 

Understanding the basics, what is an ERP and why it matters

What is an ERP and what does it do?

ERP is an acronym that stands for enterprise resource planning. It’s software that centralizes work across multiple departments, so that you can streamline processes and ensure the secure management of your resources (financial and otherwise). ERPs cover functions such as marketing automation, financial management, customer relationships management, supply chain management, etc. They can be industry-specific and save teams considerable time and money by modernizing workflows and consolidating crucial company information.

What are the core benefits of an ERP system?

Benefits of an ERP system

ERPs serve a wide range of functions depending on industry requirements. Many of the solutions on the market can be modified or customized to meet the demands of a company. However, there are some core benefits regardless of the exact functionality an ERP is purchased for, and these benefits tend to impact all departments. So, whether you’re looking for an ERP to handle financial, human, or marketing resources, it’s likely that you will experience the following benefits:

Steps to stablishing a custom ERP requirements checklist

 (click one to jump ahead)

  1. Survey team and establish a list of business requirements.
  2. Get upper management to actively engage in the process.
  3. Consider in-house expertise and get full user support.
  4. Make a comprehensive list of all functional requirements.
  5. Figure out integration with existing systems and processes.
  6. Consider the capabilities the ERP should have as you scale.
  7. Set a realistic budget covering implementation, integration and onboarding.
  8. Crunch the numbers and calculate the total cost of ownership and ROI.
  9. Research industry-specific solutions and avoid expensive customizations.
  10. Decide what kind of team you want to work with.

1. Survey team and establish a list of business requirements

Make a comprehensive list of all your business requirements for the ERP. You will need to survey the people it will impact most i.e. the users and those directly impacted by its functionality. There is no one-size-fits-all checklist, and you will need to speak to employees at all levels of your company to get a feel for the right criteria. It might be useful to make a list of those who will use the system, and then start by asking them what they need it to be able to do with it. Then, you may want to ask upper management what sorts of reports they need to see to make financial decisions. You also want to ask trusted customers and suppliers what would help them.

Use this feedback to build a tiered list of requirements

If you do this well, you will end up with a large list of ideas. Take this list and use it to form a tiered list of requirements. Working with your team, establish what are the “must-haves”, “good to haves” and “nice to haves”. Your list may have more tiers than this. The overall aim is to get a clear picture of the essential features for your ideal ERP system and which features you can maybe live without.

Once the list is tiered, get the entire team to evaluate it. Can someone fight for a feature that got pushed to the bottom of the list? Be flexible and try to listen to everyone’s input. Weigh the costs and benefits of what they advocate for before you finalize the list.

At the end of this process, you will be able to start looking at some of the other technical requirements of a good ERP. Looking at solutions before you know exactly what you need can have dizzying results. It may even prevent you from making a decision grounded in your business requirements.

2. Get upper management to actively engage in the process

Leadership buy in and financial transformation | ERP requirements checklist

It’s up to you to convince upper management of the importance of the project and get them to have total buy-in and give full support. Your list of business requirements should be one tool that will make it easy to show them the potential of the right ERP system, but really, you need more from them than just budget approval. Without their buy-in, you may end up getting a cheaper solution with less functionality than you require and find that it costs you in the long run.

Before you approach upper management, be sure to have read through this list comprehensively, as it details many things that you may want to be aware of (and have answers for!) before you book a meeting.

It’s also wise to consider the adoption of a new ERP as a financial transformation that is a major decision which impacts every aspect of your company. Framing it this way can help leadership understand the importance of the change and get the support you need to drive what will be a transformative process for the entire organization.

Recommended reading for financial transformations:

3. Consider in-house expertise and get full user support as part of your ERP requirements checklist

Chances are that there are members of your team who have a wealth of experience using different ERPs at previous jobs. Many of these ERPs will be specific to your industry’s needs. As part of your checklist, get their suggestions on the systems they’ve loved throughout their careers. This is important information and can cut down on training costs later. If you end up choosing a solution that some of the team is already familiar with, they can help with training the wider team. It’s also important to understand what they loved about those systems so that you can be sure any new ERP will get their full support.

You need your team’s full support to make the system work. After all, they will be using the system, and the learning curve can be steep. Sometimes, companies make the mistake of landing their teams with a new system, without first supporting them in the transition. Think about how to manage the change to a new ERP from a human perspective. Your team needs to know that documentation and training will both be readily available.

4. Make a comprehensive list of all functional requirements

Once you’ve got a clear understanding of your team’s abilities and requirements, it’s time to get technical. Consider what functional requirements your ERP needs to make your company run smoothly. For instance, should it be hosted on-premise or in the cloud? Will you be using this in addition to a CRM system or run your sales processes out of your ERP? Other functionalities might be the ability to manage multiple currencies and companies.

It’s as important to establish the functional requirements you don’t need. For instance, if you don’t manage inventory, then the system you choose won’t need to have that functionality. Many ERPs are built specifically for certain industries. It’s worth considering which functionalities are crucial to your business.

Some general functionality questions to ask:

5. Figure out integration with existing systems and processes

Make sure your ERP requirements checklist has a section for integration

Your company already has processes and systems in place. Your new ERP solution should not interfere with these workflows and technologies, unless necessary. The ERP must be easy to integrate. Otherwise, you will end up creating an administrative nightmare that will make it impossible to fully optimize your systems.

For example, if you’re already using Microsoft 365 it makes sense to opt for ERP systems that will integrate with that system. Basically, you need to actively look for companies that have built solutions for your industry. These companies will likely have processes in place to integrate your systems with the ERP.

In some cases, you may find your current systems are all out-dated. It will end up making the most sense not only to invest in an ERP but also the other tools and systems that integrate with that system. Although this may feel daunting, it will save time and money in the long run.

Whatever you decide, make sure your ERP requirements checklist has a section outlining the systems it will need to integrate with. There’s no point wasting time researching ERPs that won’t function in your workplace.

6. Consider capabilities the ERP should have as you scale

It’s also important to think about the future when deciding on your ERP requirements checklist. Most likely, your company plans to scale, and as it grows your systems need to be able to seamlessly manage that growth. That means choosing a solution that will be as good for your company tomorrow as it will be today.

If you do plan to scale and won’t need all functionality immediately, it’s important that you think about scalability and updates to the system as time passes.

7. Set a realistic budget covering implementation, integration and onboarding

Deciding how much money is realistically available for an ERP system is crucial. This is an investment in a system that will operate at the very heart of your business for at least a decade. It’s important to weigh up how much you’re going to spend. Be sure that management understands the benefits before you start whipping numbers out of the air.

In 2019, a report  that analyzed data from over 2,000 projects. They found that the average budget per user for an ERP project was USD 7,200. Training costs, integration costs and the system cost are all part of the expenditure you can expect in getting your ERP up and running. Make sure your requirements checklist understands the true budget required to get the job done.

8. Crunch the numbers and calculate the total cost of ownership and ROI

Calculate ROI | Step for building custom ERP requirements checklist

Once you establish a budget, it’s time to calculate your return on investment. Make sure these costs and benefits are spread over time so that you get a clearer picture of the ROI over time. Once you know how much it will cost, you can start to think about the improvements and benefits of the system and calculate the money that can be saved. E.g. processes that once took hours, may now only take minutes.

Now that you will have a system taking care of labour-intensive work, you may be able to free up staff to provide valuable services that were impossible in conjunction with arduous reporting and invoicing processes. This will be very different for each company and comes back to the business requirements. Your team must understand the time and money that will be saved and that this is an investment that will have a measurable ROI.

9. Consider industry-specific solutions to avoid expensive customizations when creating ERP requirements checklist

One of the biggest costs in implementing any ERP system is requiring a lot of customizations, this is often because the solution is too general and not fit for purpose. Ask yourself is your company so unique that no other company has ever needed the same tools? Although this is possible, it’s not likely. You should be able to find an ERP that has been tried and tested and that has functionality specific to your industry. Whenever you find an ERP system pushing customizations, ask yourself if those features might be standard in a system built with your industry in mind.

For instance, a healthcare provider looking to manage materials is going to have completely different requirements from a SaaS company that wants to streamline its subscription billing. Both companies will need a system that can support industry-specific extensions that supplement the core ERP rather than relying on overpriced customizations built by ERP providers who don’t usually operate in their industry.

One way of establishing whether or not a software provider has the tools you need is to look for case studies or examples that exist where similar business models to you have successfully implemented and used that ERP. If you are going to need customizations, be sure you focus on providers who have a team of skilled developers who will be able to quickly and efficiently tweak your system.

10. Decide what kind of team you want to work with

One component that often gets left off ERP checklists is deciding what sort of team you intend to work with. It’s a piece of software! Why does it matter as long as it has the right functionality? The people behind the product matter when a system is integral to the day-to-day running of your company.

Make sure you know how helpful they’re willing to be? If they will be hands-on with training? If an implementation framework exists? How have other companies found working with them? The right global ERP system will also have demonstrated success in the countries where you operate, so make some of your selection criteria the availability of useful resources, case studies and references that are relevant and industry-specific. Compare and contrast how well different ERP systems work within your space.

By establishing what it is you’re looking for as part of your ERP checklist, it will then be easy to research different solutions and make sure that the team behind the system will be as responsive and helpful as you need.

The top ERP requirements template or checklist

For those who don’t want to build a custom ERP checklist, it’s possible to use this requirements template which outlines the top functionality you should consider when prioritizing features. Even if you are building a custom checklist, defining some of the most common functionalities can be helpful before you get started. Below is a list, segmented by department, to help you choose an ERP or facilitate the discussion about company requirements. Alternatively, download the free ERP requirements checklist here. 

 Financial and accounting top requirements

Given the demands of modern finance, it’s no surprise that one of the core functions of an ERP is to streamline and automate processes so that the finance team can focus on more strategic initiatives. Here’s a list of the requirements accounts teams usually request:

Subscription management and recurring revenue requirements

Most industries have seen the adoption of complex pricing models, and SaaS migration has become a necessity for many forward-thinking companies. You could easily consider subscription management tools under the finance section. Still, it’s valuable to give this functionality a separate heading given how central these tools are to the future of organizations. Below is a list of requirements your ERP needs if you plan to incorporate recurring revenue strategies in your future plans.

Integration requirements

Integration is one of the most critical core requirements, yet it’s also easy to ignore. Double-check all solutions and explore options built to integrate with your current processes and workflows.

Data-management and security requirements

One of the central conversations in choosing an ERP is effectively managing sensitive data. It is essential across all industries, even more so for those navigating stringent regulatory guidelines such as healthcare and finance. It is imperative that your ERP can handle the complexity of modern data management and protects sensitive information against security breaches and attacks.

Business intelligence tools and enterprise reporting requirements

One of the most compelling reasons for any leadership team to invest in an ERP is the ability to attain business intelligence that will help set your company apart from the competition. Reporting and analytics empower teams to make strategic decisions based on accurate and timely information. Here are some of the requirements leaders look for:

Managing commercial leases

Whatever your industry, it is likely that commercial leases are part of how you do business. Health care companies find themselves converting retail spaces or leasing out equipment, retailers lease multiple locations, and manufacturers and SaaS companies spend a considerable amount of their budget on leasing storage facilities. Whether you are the lessee or the lessor, it’s likely that as operations grow, lease management requirements will increase. Below are some of the features you should consider.

Company and industry specific ERP requirements  checklist

The list above is by no means comprehensive and merely acts as a launch point for companies trying to set expectations and define requirements. It’s also essential to consider the demands of your operations, the struggles with your processes, and any custom requirements you might encounter. It’s worth creating a list of what this looks like department by department, getting marketing, HR, product, and customer service all to weigh in. Here are some industry-specific requirements you might need to consider, depending on your goals for the ERP.

ERP requirements checklist template and downloadable

 

 

SaaS migration roadmaps vary dramatically between various industries and even companies. Often, these types of financial transformations involve the transition to a recurring revenue business model using SaaS pricing strategies. However, this is not necessarily always the case, and it’s essential to remain flexible when deciding what tactics best suit your organization. Many factors are driving what’s now become an almost universal shift, namely:

Reports state that 65% of companies transitioning to a recurring revenue model face operational challenges. A problem that should not discourage those contemplating the change but instead introduce a degree of caution and encourage an emphasis on strategic planning. The fact remains that those who cannot keep pace with the shift to a more agile mindset will inevitably become obsolete.

This blog steers clear of a one-size-fits-all template and sets out a list of best practices to help you build a custom roadmap that covers the nuances of your solutions and best fits your industry. Whether you’re a software company looking to break down legacy software into tiered microservices or a retailer experimenting with moving towards the subscription economy, these considerations will help you navigate the common challenges that impact the success of such transitions.

1. Assess the pros and cons of SaaS migration before you get started

When it comes to any significant shift, you need to be fully aware of all the advantages and disadvantages. It’s easy to focus on the pros, but such two-dimensional thinking fails to prepare your team for the likely challenges ahead. In fully understanding what might occur, you can better align your teams to handle the transition without having them lose confidence at the first hurdle. Internal advocacy is a powerful component of successful SaaS migrations and can be hard to achieve if you do not take the time to prepare teams adequately. Get started with this blog on the pros and cons of SaaS migration.

2. Consider the SaaS migration model that works best for your customers

Not all migrations will be the same, so it’s no surprise that there are several different approaches to shifting your products and services over to SaaS. The model that fits best will depend on your solutions and your customers. One of the central challenges of any transition is retaining customers as you change, which means considering their experience at every stage of the journey. None of the following migration models are mutually exclusive, and companies often choose to adopt a hybrid version, particularly in the early stages of migration.

Common SaaS migration models

3 most common saas migration models

1. Silo migration model or single-tenant model

One of the most common SaaS migration models allows users (tenants) a dedicated server or infrastructure for your product or service. At its most fundamental level, this model means there’s no requirement for refactoring your product, and it essentially remains the same. From the end-user perspective, this may be the least disruptive, allowing the continuation of customized versions of your product. However, this may not be the best long-term solution when it comes to economies of scale.

2. Layered migration model

A layered migration model involves moving your solution to the cloud in layers. With this approach, companies can start small and slowly move to a multi-tenant model, one service or component at a time. Similarly, they can remain in a single-tenant model, slowly moving customers to the cloud.

3. Data migration model

Often this is a hybrid model for SaaS migration that combines both single-tenant and multi-tenant migration strategies. For instance, data management might move to a multi-tenant cloud-based architecture for security reasons, but the rest of your solution might remain single-tenant.

3. Conduct customer surveys and market research before deciding on pricing models

One of the most significant shifts for any organization will be managing customer expectations and conducting thorough market research to back up any changes you feel you need to make to products or services. Without customer buy-in, it will be challenging to build on your current reputation, so it’s essential to keep existing users informed and make them part of the process. Some of the areas where customers can be most insightful are market-facing elements—for instance, worried about choosing the right subscription strategy? Not sure which pricing model best suits your market?  Want to test run some pricing psychology tactics? Don’t just depend on competitor insights. Your customers will be able to offer just as much guidance in areas that impact them directly.

4. Establish new KPIs to measure success and forecast profitability better

If you’re moving away from the traditional license and maintenance model, it stands that how you measure success will also have to shift. For one, most companies that undergo SaaS migration no longer receive upfront payments and rather receive and recognize revenue as it’s earned. This means that it will be harder to calculate profitability as initial sales will not earn as much as the Lifetime Value (LTV) of the customer.

Adjusting KPIs won’t just be restricted to sales and marketing, they will need to be changed to reflect the changes in every department. You will need to work with each department to figure out what success will look like based on new performance metrics. One place to start will be to closely monitor subscriber churn metrics and your customer acquisition and retention metrics.

5. Prioritize change management to enable the internal shift

Thinking of your SaaS migration as more than just a technological shift will be essential. This change impacts every aspect of your business and is much a cultural and financial transformation as anything else. Transitions like this start with leadership and require you to fully understand the digital maturity of your company before you can move forward.

Digital maturity scale for financial transformation

Investing in communications at every level will make it possible to tackle challenges as they arise and ensure that the transition doesn’t adversely impact employee retention. You will need your best people on board to manage this change and sizable investments in your customer success support staff. Get started by reading this blog on the core challenges companies face during financial transformations.

6. Invest in SaaS tools and automation to help you scale

When it comes to SaaSifying products and services, companies need to invest in tools that will help them automate manual processes at every level of the organization. Implementing a cloud-based CRM and subscription billing software will help you manage the complexity of high growth cycles.

Your team will be able to handle a more significant workload effortlessly. You will also understand some of the nuances your customers will face when migrating to your SaaS solution. For instance, what level of customer care seems appropriate? What parts of the process require the most communication? You can use your own experiences to help build these benchmarks.

Plan for automation wherever possible. Even if you need to wait to implement some of the tactics later in the process, that doesn’t mean you should sideline planning each strategic step. It’s possible to introduce phases that will help you systematically move to the cloud. It is wise to consult each department to find out where bottlenecks exist and alleviate the pressure in these areas. Get started with our guide to financial transformation resources for SaaS leaders.

7. Prioritize integration when developing SaaS solutions

Despite the recent growth of SaaS apps, not all of them integrate easily with other solutions. This lack of integrated options is an inconvenience and a deterrent as markets become more saturated. Suppose the difference between you and a competitor is that one of you integrates easily with current workflows and software. The solution that fails to integrate is likely to miss out on potential customers.

Being mindful of the demand for specialized apps that fully integrate with speed and ease will set you apart from many of your competitors. For instance, you may want to consider the compatibility of your tools with major CRMs or ERPs before you make the move. Even if you cannot promise integration right off the bat, it’s something to build towards for your development team.

financial transformation case study Starboard CTA

Software as a service (SaaS) solutions are often the nucleus of a company’s modernization journey, but what about providers? How can they ensure that their own financial infrastructure is up to date and aligned with their company goals? The following resources have been hand-selected for leaders that are considering or currently managing a financial transformation. Below, you will find blogs, booklets, case studies, whitepapers, videos and more!

 

Skip to a specific aspect of thought leadership on financial transformation: 

1. Keeping up with trends in financial transformation
2. Key metrics to analyze your finance function
3. Choosing which tools and technology to adopt
4. Staying on top of security and compliance
5. Best practices for implementing financial transformation

 

1. Keeping up with trends in financial transformation

In today’s world, remaining relevant in the software industry is tantamount to ensuring your organization is digitally mature. With the constant influx of new players into an already saturated market, providers must exceed customer expectations and keep up with modern technologies. By following the trends in financial transformation, leaders can keep a finger on the pulse of the industry and better position their company for success.

 

Resources on trends in financial transformation: 

Finance leaders playbook CTA | retail expansion

2. Key metrics to analyze your finance function

How do you know when the time is right for financial transformation? While there isn’t a definitive answer to this question, there is an effective place to start. By routinely analyzing key metrics and your company’s performance, you can keep track of whether the finance function is in harmony with the overall business goals. If there is a misalignment, it would be a sound decision to investigate what a financial transformation could look like for your company. The following resources will help you develop a set of performance metrics and questions to ask, so you can monitor the health of your finance function.

 

Discover how to analyze your SaaS company’s performance: 

3. Choosing which tools and technology to adopt

Choosing the right tools and technology to fulfil your business requirements and provide your company with essential industry features is a huge undertaking. If you embrace a new system, it will transform the role of your finance department and likely sustain your organization for at least a decade. It’s not a decision that should be rushed. The following resources will kick-start your research and enable you to make a wise investment.

 

Learn how to pick software that will successfully modernize your business: 

 

financial transformation pillar page CTA

4. Staying on top of security and compliance

Accounting standards and regulations are constantly evolving to keep pace with the breakneck speed of innovation in the software industry. SaaS companies must adapt their processes to maintain compliance and enhance data security. This is especially true if your organization handles personally identifiable information (PII) or personal health information (PHI). The following resources will introduce you to methods for protecting your data and provide you with an overview of relevant accounting standards for SaaS companies.

 

Don’t be caught off guard. Find out how to bolster your security and maintain compliance: 

 

5. Best practices for implementing financial transformation

More and more companies are undergoing financial transformation, but not all of them result in a successful modernization. Without a clear goal and action plan, teams may be distracted by irrelevant benchmarks or paralyzed by an ever-growing list of available add-ons. These resources will help SaaS leaders build a roadmap to circumvent common pitfalls and implement effective initiatives to achieve their targets.

 

Avoid silly mistakes with these best practices for implementing a financial transformation: 

MoxiWorks saves 80 days annually

Like any other form of payment, recurring billing has its own unique challenges. Subscription services lose roughly 2% of customers each month due to expired credit cards that aren’t updated. When you start to factor in failed payments caused by spending limits, insufficient funds, payment gateway glitches, or cancelled credit cards the involuntary churn rate accounts for a sizable revenue leak.

Dunning is the process of communicating with customers to recoup such losses. Despite a negative public perception, modern dunning management can contribute to a positive customer experience and significantly increase your monthly recurring revenue (MRR).

Whether you’re implementing a SaaS billing model for the first time or simply trying to ramp up your monthly or annual recurring payments, effective dunning management will be central to your success. This blog answers some of the most frequently asked questions about dunning, so you can master the process to mitigate revenue leakage and involuntary churn.

Skip ahead to a specific section on dunning management by clicking on the topic below. 

What is dunning?

It’s normal for businesses to encounter a failed payment at some point. Whether it’s due to insufficient funds, a misconfigured payment gateway, or an expired credit card, you will need a way to recoup your monthly recurring revenue (MRR). Dunning is the practice of communicating with customers to recover lost revenue from failed payments and reduce involuntary subscriber churn.

Although the term “dunning” is still used in accounting, people who work in other departments might explain the same concept using terms like “accounts receivable” or “collections process” instead. For instance, dunning management can be found under the credit and collections feature and optimized with collections process automation for Microsoft Dynamics 365 solutions.

 

What is a dunning letter?

A dunning letter, or collection letter, is the collection notice sent to customers informing them that their last payment has not gone through. Modern subscription businesses rarely contact their subscribers via paper letters, opting instead for digital communication methods like email, SMS, or app notifications.

There are many templates and programs online that can help you generate a dunning letter. Here’s a helpful guide to walk you through creating a collection letter through the accounts receivable feature in Microsoft Dynamics 365.

What is the difference between voluntary and involuntary churn?

Voluntary or active churn results from customers making the conscious decision to unsubscribe from your service. Typically, the subscription is cancelled because the service no longer fulfils the customer’s wants or needs.

Involuntary or passive churn occurs when a customer’s subscription is cancelled because something is stopping them from paying. This type of churn accounts for a sizable portion of preventable revenue leakage because the customers often don’t want to unsubscribe—they just aren’t presented with a clear option to fix their payment issue.

What is involuntary churn?

Why do SaaS companies need dunning management?

Subscriber churn is an unavoidable obstacle that every SaaS business must handle. Fortunately, effective dunning protocols can recover on average 9% of your MRR. Dunning management empowers you to proactively reach out to customers to update their payment method, prevent service disruptions, and facilitate an overall positive customer experience—reducing revenue lost through involuntary churn.

What is pre-dunning?

Pre-dunning is the practice of sending reminders to customers that an upcoming payment may fail unless they update their information. There has been an open debate about whether customers perceive this tactic as helpful or annoying.

Pre-dunning used to be a best practice, but in recent years it has started to fall by the wayside as subscription businesses have become more popular and there are more options for preventing failed payments behind the scenes. For example, some SaaS companies may communicate directly with issuing banks to automatically update customers’ credit card information.

When is pre-dunning appropriate?

When is pre-dunning appropriate?

Nevertheless, there are still a few scenarios where pre-dunning may be appropriate for your business. It has shown to be effective in the following three circumstances:

1. The customer’s credit card is going to expire

According to the Subscription Commerce Conversion Index, the average subscriber holds five different retail subscriptions. It’s safe to say that your customers may struggle to keep track of all their subscriptions and need a reminder to update their payment details. A best practice is to remind them 30 days before and, if they haven’t taken any subsequent action, 7 days before their card expires.

2. The billing cycle is bi-annual, annual, or longer

Oftentimes, the longer the duration between payments, the higher the risk of it failing. Businesses that offer billing cycles with bi-annual, annual, or longer options may benefit from pre-dunning to ensure that the customer’s payment method and details are still accurate.

3. The first payment after a free trial ends

Whether or not your business collects billing information during sign-up, it’s a good idea to establish transparency early in your relationship with the customer. A quick reminder that states when the free trial will end, the amount you will start charging, and the due date for the first payment will help avoid angry customers that simply forgot to cancel their subscription on time.

What is automated dunning management?

Manually addressing every customer’s declined or failed payments is an impossible task that would waste valuable time and resources. The only worse solution would be to not contact your customers at all. Automated dunning management (a.k.a. collections process automation) streamlines the process by performing actions like:

 

How does automated dunning management reduce involuntary churn?

In addition to saving your accounting team hours combing through accounts and drafting dunning letters, automated dunning management counteracts involuntary churn by contributing to a positive customer experience. Below covers the top three features that benefit subscribers.

How does automated dunning management reduce involuntary churn?

1. Automatic retries for failed payments

Subscription services have gained a reputation offering peak convenience, but when a payment fails, customers may become frustrated and churn for a few reasons:

Automatic retries with a customizable schedule can address all these concerns and minimize unpleasantness by reducing the frequency and degree to which the subscriber needs to get involved. Fewer barriers to paying for services means more happy customers.

2. Professional and friendly customer communication

Manually drafting dunning letters for every customer with a failed payment is not only a time-consuming process, but also is prone to error. Sending a collection notification riddled with typos or mixing up which past due invoice email to send to which subscriber can make your business look unprofessional. Automated dunning management organizes customer communications to facilitate enhance customer relations. Some solutions can even make the reminders more friendly by adding personalized touches like the customer’s or business’ name.

3. Records of state of accounts

A statement of accounts and accounts receivable aging information is indispensable for assessing the financial health of your customers. Without good data management, it’s much harder to strategize feasible methods for decreasing outstanding payments and mitigating bad debt. Automated dunning management generates accurate customer aging reports that provide insights like the number of failed payments, renewed subscriptions, upgrades, and suspended accounts.

Complete guide to subscription management