Customer refuses to fulfill contractual obligation. Now what?

@Brian Hartley , @Will Pagden and I were bonding over the fact collections can be a painful part of the churn process in another thread (which I'll selfishly plug here). Fortunately, we don't see too much of this, but still is something we could be better at.

How do you handle collections?
What's your threshold to holding a customer to term vs letting them out?
Any tips and tricks to have a higher rate of collecting?

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Comments

Shari Srebnick

@Brian Hartley I agree with Gurdev: lean on the ToS. If you delivered what was contractually outlined, then stick to that. If not, then demonstrate accountability, compromise on parting ways, and then have an internal meeting on how to tighten up the ToS to avoid this happening again.

gurd3v

@Brian Hartley Lean on ToS. Did you deliver on the framework within ToS? If so, sorry customer, we're working with you to not hold you to term, but rather trying to find an amicable separation. Always lean on your ToS. And if you're in the wrong, set the culture of owning it and using it as an opportunity to tighten your ToS.

Bad reviews come and go. I'm a big believer in letting them happen, because in reality, you have control over the narrative. Respond to the customer explaining the situation, and showing empathy. A prospect will see that and actually respond well to it rather than just having all 5 star reviews.

Just my thoughts, happy to sync offline about our strategy around these sticky situations.

Brian Hartley

The irony of this string...just today I am working with a customer who is trying to terminate their agreement. They signed a subscription deal in May. In good faith, we are trying to show some leniency by proposing a "separation" fee. The customer responded with this "Our team spent lot of time on this as well and didn’t get any value back. So at this point, it would be better we all walk away with no compensation to each other and we would not write any bad reviews."

Threatening bad reviews is a new one...

CC @Gurdev Anand @Shari Srebnick

gurd3v

This is great - thanks for sharing!

gurd3v

@Shari Srebnick Ditto Brian's ask - if you have a service that you like, would love to see if it makes sense for us to leverage as well. Appreciate it!

Brian Hartley

Yea, if you don't mind - I would be curious. That is the issue we have is that our ACV is small and therefore it would be silly to spend too much time/money on chasing down payment. sigh I wish people would just pay

Shari Srebnick

I have no idea who we use - that is not my wheelhouse. I can certainly ask, if interested. As far as ACV, we have very few that are less than $10K here in the US; our average deal size is roughly $36K ARR. In the past we had a segment of clients that had what we called an "Essentials" license which was super cheap, very restricted, and not managed by CSM's. To be honest, not sure what they did with those, since many were less than $100 per month.

Brian Hartley

Thanks @Shari Srebnick . This is very helpful. Curious what cash collection firm/third party you use? Also, what would change about your process if your average ACV was less than 10K? Still go through all of the effort?

Nandkishor Tripathi

@Gurdev Anand I can totally relate with this when in exec meet we discuss about the $$ in books vs $$ recognized. We had lot of pain in getting and sending reminders for invoices and seems like no responses.

While we had projects ongoing and providing services as standard.

With executive meet we designed the service protocol around this and created a governance.

We usually had 30 days net term payment but that sometimes get negotiated in advance and go up to 60 or 90 days.

As per the protocol we send 3 follow-up emails to the designated person who can clear the bills. If there is no response as per agreed governance model we approach project sponsors to get their attention. Almost 80% we have got the successful response at this end.

For other 20% we sent notification to POC (who is actively engages with CSM) that we are bound to stop our services with due notice of 30 days as per the agreement if don't hear a response back on the Invoice amount. (Not so fun in doing this, but we had to). This has helped in getting almost 98% of clearance.

Having a proper wordings in contract/agreement and communication governance definitely can help in reducing the friction with Invoicing.

Hope this is helpful.

Will Pagden

Working with finance is key, we have effectively a shared services finance which isn’t really shared service meaning we sit bottom of the pile. that’s changing though and we are getting dedicated finance which will work so much better.

Laura Lakhwara

Such a good question. Thank you for asking.

@Shari Srebnick - this is very helpful. I shared your feedback with my team so thank you for taking the time to outline it.

Shari Srebnick

@Will Pagden We've been around a while so have been through a lot of trial and error. As I mentioned above, it wasn't always this well organized and we have had our pain points around it ... and still do at times. However, collaborating with Finance on an agreeable solution for all involved really helped to get us where we are now - and it helped to foster more of a partnership with our teams as well.

Shari Srebnick

Well, it was certainly painful getting to this point for so many reasons. I could actually tell some (not so) funny stories from years back around this topic.

That said, what we have now is a marked improvement and for the most part, works like a decently-oiled machine (notice I didn't say well-oiled )

In any case, hope this was helpful!

gurd3v

Very helpful insight! Looks like your process is really well vetted and thought out - appreciate the detail added.

Will Pagden

This is useful information @Shari Srebnick, I’m interested to know the size of your company. From the sounds of it its quite established and likely well above the $10m ARR stage?

I think its easier to do in larger organisations where the ACV is higher.

Shari Srebnick

Hi Gurdev,

Collections are most definitely a painful part of the process.

We have a Collections Manager who is responsible for invoicing and collecting payments from customers. We only get involved if absolutely necessary.

Our process is that we have a monthly compliance meeting with Myself, VP of Client Services/Acct Mgmt, Head of Acct Mgmt, Collections Manager, CFO, and Accounting Director. At that time we review the status of payments and focus on anything that is more than 30 days past due. If Finance is not successful in obtaining payment or even communication around payment, both myself and Head of AM will get involved.

If it reaches a certain point of past due and especially if there has been limited/no communication, we will discuss deactivation.

We rarely, if ever, let someone out of their contract; their is clear language around that in the document. Last resort is sending to cash collection.

As far as tips and tricks, we have found that actively discussing this in the sales cycle and getting all the proper accounts payable/finance contacts before close of a deal helps a ton. For existing clients, I have the CSM's update that info 1-2x per year with our POC as part of a normal contact update.