Revenue Collection

What is Revenue Collection?

Revenue collection is the process of collecting money owed to a company or government agency for goods and services provided. This can include taxes, fees, fines, and, in a business context, amounts due from customers for sales made on credit.

Revenue collection is crucial for the functioning of any organization as it provides the necessary funds needed to cover operational expenses and invest in future growth. Businesses of all sizes need effective billing and collection processes to maintain a healthy cash flow.


The Basics of Revenue Collection

While it seems like a simple process on the surface, there’s a lot more to revenue collection than asking for money, a customer paying, and having it land in your business account. There are steps in the process that ensure your business receives the funds it’s owed, and that those funds are recorded accurately.

Not to mention, there are plenty of potential challenges and roadblocks that can arise during the revenue collection process, such as non-payment, late payments, and disputed charges.

The Revenue Collection Process

While your company’s exact procedures might vary depending on your industry, customer relationships, and invoicing methods, the general steps of revenue collection remain the same.

Here’s a breakdown of the steps involved in the sales and collections processes:

  1. Receiving an order. The process begins when a customer places an order. The sales department receives this order and prepares a sales order document. This document is then sent to the credit department for a credit check to ensure the customer can pay for the order.
  2. Order processing. Once the credit department approves the order, it is sent to the fulfillment team. The goods are then gathered and shipped to the customer. A shipping document is created and sent along with the sales order to the accounts receivable department.
  3. Invoicing. The first step to collecting revenue is sending an invoice to your customer, outlining the goods or services provided and the amount owed. This is normally a feature within billing software.
  4. Invoice payment terms. Your customer will have a set amount of time to pay the invoice, as well as agreed-upon payment terms (e.g., net 30).
  5. Payment processing. With the trend toward digital finance, 82% of companies report using some form of digital payment processing in their B2B transactions. You might accept payment via bank transfer, credit card, or digital payment platforms like PayPal or Stripe.
  6. Invoice reconciliation. Reconciliation is the process of matching the payments received to the corresponding invoices and accounts. In doing so, you’re verifying that all payments are accounted for and accurately recorded in your financial records.

If a customer does not pay on time or disputes the charges, there are additional steps you may need to take. You might need to send reminders, follow up with the customer directly, or even escalate the situation to a collections agency.

Payment Methods

As briefly mentioned above, there are several B2B payment methods, each with its pros and cons.

  • Credit cards are one of the most popular and convenient ways to transact. All of your customers will have one (and many will prefer it). However, you’ll be charged a processing fee for each payment. You’re also at risk of chargebacks, which can create additional headaches and losses.
  • Virtual cards are similar to credit cards but are generated for one-time use. They provide better security and reduce the risk of chargebacks, but they also come with processing fees. Since they don’t work for in-person transactions, project-based businesses and professional services providers can’t rely on them as their only option.
  • ACH transfers usually involve no fees (and when they do, they’re considerably lower). They’re perfect for high-value transactions, but they require more effort on the customer’s part and take longer to process.
  • Wire transfers are much faster than ACH transfers, but sometimes come with huge fees.
  • Digital wallets are the most convenient option. They integrate widely with various software and make paying for goods/services (and managing payment) easy. Like credit cards, they entail fees that add up.
  • Cryptocurrency is becoming increasingly popular, offering secure and fast transactions without traditional banking fees or security risks. However, it is still a relatively new payment method and the value of crypto is highly volatile.

To accept any of these payment methods, you need to use a payment processor. Payment processors facilitate the transfer of funds between you and your customers, whether it’s credit card companies or digital wallet providers.

Potential Challenges with Revenue Collection

Of course, no revenue collection process is perfect. At some point when running your business, you’ll face the following issues when collecting revenue (if you haven’t already):

  • Changes in personal information
  • Insufficient data about the customer
  • Payment disputes
  • Lack of necessary funds to pay debts
  • Lost checks or payments not received
  • Slow-paying customers or non-payments
  • Errors in invoice or purchase order processing

To avoid these, having clear and concise processes in place for your billing and collections operations is crucial. You have to regularly audit your processes to identify and rectify any potential issues before they affect your cash flow. And you have to streamline everything using software.

Revenue Collection for Businesses vs. Government Agencies


For businesses, timely collection of customer payments is what allows things to keep running. The more familiar term for this process is accounts receivable. It measures the money that your customers owe you for goods or services you’ve already provided. So, it’s the total amount of outstanding invoices.

Most companies have a department that is responsible for managing the entire process. This includes creating an AR invoice, sending it to the customer, tracking payment, and chasing up on late payments.

To incentivize on-time (or early) payments, companies usually offer discounts for early payments, late fees for overdue payments, or other payment terms to encourage timely collection.

A common example of this is the “net 30” payment term, where customers have 30 days to pay the invoice before facing late fees. For example, 2/10, net 30 means the customer can receive a 2% discount if they pay within 10 days, but must pay the full amount within 30 days, regardless.

They also focus on billing efficiency through software, which helps them manage the billing process and reduce errors. 

Government Agencies

Government agencies fund essential services and programs through taxes, fees, and fines. While businesses aim to generate revenue from customers, governments levy taxes on the public (i.e., citizens and businesses) to earn money.

A few examples of this:

  • State and federal income tax
  • Fees for using state facilities
  • Fines for speeding or parking illegally
  • Property tax for business and residential properties

Government agencies collect revenue using a different process from businesses, with different goals and challenges. Revenue collection for governments is usually centralized in a department or agency that handles all the tax processes.

Governments also do not extend credit to their customers (i.e., taxpayers), and they don’t offer discounts for early payments. Instead, they have a fixed deadline for all payment obligations, and late payments incur serious consequences such as penalties or legal action.

Due to the scale of their collections, they have strict regulations and procedures in place to ensure accurate record-keeping and prevent fraud.

The Importance of Revenue Collection for SaaS Businesses

Recurring Revenue Model

The SaaS revenue model is built around recurring revenue. While most businesses offer their services and bill customers for the partial/full completion or delivery of a product, SaaS companies charge for the continued use of their software.

While this provides stable and predictable cash flow for software companies, it also means the collections process has to be far more automated. If a customer fails to pay on time, the software shuts down, and the user loses access.

The reason for this is that, from an accounting standpoint, payments subscribers make to SaaS companies are unearned revenue. They’re upfront payments for a month’s/year’s worth of access to the software, which the company recognizes once the subscriber uses the product for that period.

Any interruption in payment disrupts this accounting process.

Customer Retention

Since SaaS companies depend on recurring payments, retention is the #1 priority.

There are two types of churn: involuntary and voluntary churn. And they’re both closely tied to the collections process.

  • Involuntary churn happens when a customer’s payment fails, usually due to expired credit cards or insufficient funds. So, you can’t collect the payment.
  • Voluntary churn happens when a customer leaves you for a competitor. In this case, they no longer want to pay for your services.

Both types of churn can be avoided or reduced by streamlining your collections process. You can prevent involuntary churn by using software that automatically updates customer payment information. By extension, you’ll reduce voluntary churn through an exceptional customer experience — one where customers update their accounts and make payments without any friction.

Collections Metrics to Track

To really understand how your collections process is working, you need to track the right metrics. It’s not enough to just know that revenue is coming in; you have to delve deeper into the data.

A few key metrics to track are:

  • Average days sales outstanding (DSO) The average number of days it takes to collect customer payment. A high average DSO means that your collections process is not efficient, and you may have cash flow issues.
  • Collection efficiency rate — The percentage of outstanding invoices collected within a specific timeframe. A high ratio means your collections process is working well, and you have a healthy cash flow.
  • Collection effectiveness index — The total amount of overdue invoices collected divided by the total number of overdue invoices. The closer this number is to 100%, the better you are at handling collections.
  • Bad debt ratio — The percentage of total receivables you cannot collect due to customers’ inability or refusal to pay. This metric helps you identify potential issues with customer creditworthiness and adjust your collections process accordingly.
  • SaaS churn rate The percentage of customers that cancel their subscription or fail to renew. High churn means you’re losing revenue and need to focus on improving customer retention.

Strategies for Streamlining Revenue Collection

To be profitable, you need an efficient and streamlined revenue collection process. Here are a few strategies you can implement to optimize your collections:

  • Automate wherever possible. Use software tools like CPQ (configure, price, quote) and billing software to streamline the invoicing and collections processes. Look for features like automatic payment reminders, customer portal integration (so they can update their payment information), and invoice generation. Or, use an all-in-one revenue quote-to-revenue suite like DealHub.
  • Offer multiple payment options. — Allow customers to pay via several different methods (i.e., credit card, ACH transfer). If you’re too rigid, you run the risk of losing customers who can’t use your accepted payment method.
  • Integrate a secure payment gateway. To facilitate smooth transactions, make sure your payment gateway is secure and can handle multiple forms of payment. Ensure that customer data is encrypted, and the gateway meets PCI compliance standards.
  • Implement dunning management processes. Use software that sends payment reminders at set intervals and automatically retries failed payments. This will help reduce involuntary churn.
  • Create an AR aging report. This will help you identify and track overdue payments, allowing you to follow up with customers and prioritize collections efforts.
  • Establish a collections policy. Clearly outline your payment terms, late fees, and consequences for non-payment in your contract or on your website.
  • Consider charging upfront. Collect payment at the start of the service cycle to ensure you receive the funds in advance. For example, SaaS companies automatically restrict access to their software once a customer misses a payment. They can do so because they charge each period for the following period’s service.
  • Offer discounts for upfront or automatic payments. This incentivizes customers to pay on time while automating the process for them.

People Also Ask

What challenges do businesses face in revenue collection?

Some challenges businesses may face in revenue collection include customer delinquency, inefficient invoicing and payment processes, high levels of churn, and cash flow issues. Collecting payments from international customers can present additional difficulties due to currency conversions and longer processing times.

What are the benefits of a streamlined revenue collection process?

Streamlining your revenue collection process improves your business’s cash flow, reduces churn rates, increases efficiency and productivity, improves customer retention, and eliminates friction from the customer experience. It also allows you to focus on more strategic initiatives instead of spending time and resources on collections efforts.