Payment Collection

What is Payment Collection?

Payment collection is the process of receiving money owed by customers for products or services delivered. It covers everything from generating and sending invoices to processing payments, tracking transactions, and following up on overdue accounts.

For a SaaS company billing monthly subscriptions, payment collection starts when the subscription renews, triggers an invoice, charges the stored payment method, and reconciles the received payment against accounts receivable. For B2B companies, it might involve sending a NET 30 invoice, tracking when payment arrives via ACH or wire transfer, and matching that payment to the correct invoice in the accounting system.

Why Payment Collection Matters

Revenue recognition happens when you deliver value, but cash flow depends on actually collecting payment. A business can be profitable on paper while running out of cash if customers pay slowly or inconsistently.

The finance team cares about payment collection because it directly affects working capital, cash flow forecasting, and the ability to meet payroll and vendor obligations. RevOps teams care because payment friction creates customer churn, especially in subscription businesses where failed credit card charges can lead to involuntary cancellations.

Core Components

Invoicing

The payment collection process starts with an invoice that specifies what is owed, when it's due, and how to pay. Invoices include line items, tax calculations, payment terms (like NET 30 or due upon receipt), and payment instructions.

Payment Processing

This is the technical infrastructure that moves money from the customer's account to yours. It includes:

• Payment gateway: The interface that securely captures payment details

• Payment processor: The service that handles authorization, settlement, and moving funds between banks

• Merchant account: A holding account for card payments before they settle to your business bank account

Different payment methods have different processing flows. Credit card payments go through card networks (Visa, Mastercard), ACH transfers move through bank clearing houses, and wire transfers settle through correspondent banking relationships.

Reconciliation

Once payment arrives, it needs to be matched to the correct invoice and recorded in your accounting system. This can be straightforward for automated recurring payments or complex for manual B2B payments where customers might pay multiple invoices with a single check or wire transfer.

Collections

When payments don't arrive on time, collections workflows kick in. This ranges from automated reminder emails for consumer subscriptions to manual outreach by AR teams for enterprise contracts.

Payment Methods

Credit and Debit Cards

Card payments process quickly, typically settling within one to two business days. Processors charge a percentage fee plus a per-transaction fee, with rates varying based on card type, transaction size, and business risk profile.

Cards work well for B2C transactions and smaller B2B purchases. The universal acceptance and familiar checkout flow make them the default for most online commerce. The tradeoff is higher processing fees compared to bank transfers.

ACH and Bank Transfers

ACH transfers in the US (and equivalent systems like SEPA in Europe) move money directly between bank accounts at a fraction of the cost of card processing. ACH transactions take two to three business days to settle and cost a flat fee per transaction rather than a percentage.

Many B2B companies prefer ACH for recurring payments because the lower processing costs add up on larger transaction sizes. A $10,000 invoice processed by card at 2.9% costs $290, while ACH might cost $1.

Wire Transfers

Wire transfers provide same-day settlement and work well for large international transactions. Banks charge flat fees that make wires expensive for small payments but reasonable for large ones. Enterprise B2B deals often use wires for initial payments and then switch to ACH for recurring invoices.

Digital Wallets

PayPal, Apple Pay, Google Pay, and similar services provide an intermediary payment layer. Customers can pay without entering card details each time, which reduces friction. Processing fees are similar to credit cards.

Implementation Considerations

Choosing Payment Methods

Offer the payment methods your customers actually use. Consumer businesses in the US need card processing and increasingly expect digital wallet options. B2B companies often require ACH and wire transfer capabilities for larger contracts.

International sales require understanding regional payment preferences. SEPA direct debit is standard for European B2B, UPI has become dominant for Indian digital payments, and specific countries may have local payment methods with high adoption.

Security and Compliance

Anyone handling credit card data must comply with PCI-DSS (Payment Card Industry Data Security Standard). Most businesses reduce compliance scope by using payment processors that handle card data directly, returning only a token that can be used for charges.

Processing payments across borders requires understanding local regulations. The EU's PSD2 (Payment Services Directive 2) requires strong customer authentication for many online payments. Different countries have different requirements around data storage, customer consent, and dispute resolution.

Automation vs Manual Processes

High-volume, low-value transactions (think subscription businesses) need full automation. Manual intervention on every $10 monthly subscription doesn't scale.

Low-volume, high-value transactions (think enterprise contracts) often involve manual steps. Custom payment terms, purchase orders, and approval workflows require human review even if the actual payment processing is automated.

The transition point varies by business, but generally, anything over 100 transactions per month benefits from automation of routine tasks like invoice generation, payment processing, and reconciliation.

Common Challenges

Failed Payments

Subscription businesses face constant payment failures from expired cards, insufficient funds, and bank declines. Without intervention, these failed payments turn into involuntary churn.

Solutions include retry logic that attempts to charge failed payments at different times or days, account updater services that automatically refresh expired card information, and proactive communication asking customers to update payment methods before they fail.

International Complexity

Cross-border payments introduce currency conversion, foreign transaction fees, longer settlement times, and varying regulations. Multi-currency pricing can help (displaying prices in the customer's local currency), as can working with payment processors that specialize in international transactions.

Reconciliation at Scale

Matching payments to invoices becomes complex when customers pay multiple invoices with one check, make partial payments, or use different reference numbers than your invoice IDs. Automated reconciliation works well for exact matches but requires manual review for exceptions.

Metrics to Track

Days Sales Outstanding (DSO) measures the average time between issuing an invoice and collecting payment. Calculate it by dividing accounts receivable by average daily credit sales. Lower DSO means faster payment collection and better cash flow.

Collection Effectiveness Index measures what percentage of receivables you actually collect. Calculate it by dividing collections in a period by the amount that was due in that period. An index below 100% means you're accumulating uncollected receivables.

Payment success rate tracks how many payment attempts succeed versus fail. This matters most for recurring billing, where a low success rate signals problems with payment methods, fraud detection settings, or customer credit issues.

When to Invest in Payment Collection Infrastructure

Early-stage companies can often manage with basic invoicing and payment processing. As volume grows or business models get more complex, purpose-built systems become necessary.

Consider upgrading payment collection infrastructure when:

• Manual reconciliation takes more than a few hours per month

• Failed payments create noticeable revenue loss

• You're expanding internationally and need multi-currency support

• Complex pricing models (usage-based, tiered, hybrid) make invoicing difficult

• Customer self-service for payment updates and invoice access becomes a support burden

For businesses using sophisticated billing models like usage-based pricing or complex subscription tiers, a billing platform like Meteroid can centralize metering, invoicing, and payment collection in one system rather than stitching together separate tools.

Best Practices

Make payment as frictionless as possible while maintaining security. This means offering multiple payment methods, providing clear payment instructions, and minimizing the steps required to complete payment.

Communicate proactively about upcoming and overdue payments. Reminder emails before payment is due help customers avoid late fees. Follow-up sequences for overdue invoices should escalate gradually from friendly reminders to firmer language about service interruption.

Monitor your payment collection metrics. DSO trending upward signals customers are paying more slowly, which affects cash flow. Payment success rates declining might indicate issues with your payment processor or fraud detection being too aggressive.

Keep detailed records of all payment attempts, failures, and successes. When payment disputes arise or customers claim they already paid, transaction logs provide the necessary evidence.