Naga Subramanya BB leads Finance and Legal at Airmeet. Naga is also an avid speaker. He has spoken about multiple topics on the rise of SaaS, AI, and its impact on finance and finance professionals in multiple forums.
- Two ways to streamline your Order To Cash (O2C) process: Centralised and Decentralised.
- Key Metrics: Cash Collected, Sales Cycle, Day Sales Outstanding (DSO).
- Integrate your CRM with your subscription management tool from day one to enable your salespeople to raise invoices without requiring the finance team’s help.
- Advice to a new Finance Execs: Have a strong handle on Product, Pricing Catalog and define Discount matrices.
- Advice to Founders: Start thinking about streamlining your O2C from Day One.
Ideal Order to Cash (O2C) process in a fast-growing startup
Visualizing any financial process as a feedback loop
- The loop starts every time somebody raises a request to raise an invoice or at the start of the customer interaction (the moment you sign the contract).
- Getting back the cash is the end of that particular feedback loop.
Advantages of visualizing it as a loop
- Make sure that the person who raised the invoice can come to know that they received a payment from the customers that they are working with.
- Whether it's customer success, finance, or sales, that individual needs to know that the customer loop has been closed.
- Work on figuring out how can finance get into the picture. To figure out how to complete the feedback loop. In such a way that you have the right kind of information scaffolding in place when it is handled by multiple different teams, or you don't have a really mature tech stack, per se.
Structuring and prioritizing your O2C
Startups & cashflow
- One of the main reasons why startups fail is because they run out of cash.
- The best source of cash is cash from our customers.
Two approaches to streamlining
- A centralized approach where finance or revenue operations take control of the entire, eg, raising the invoices and following up with the customers.
- A decentralized approach where the sales reps directly raise the invoices and they follow.
Table stakes, regardless of the approach
- Real-time visibility into invoices and payment status. The respective stakeholders are informed that the customers have paid or not paid so that we follow up with them or stop that service.
- You never give your services to anybody if they're not paying unless you have a customer contract or it’s an enterprise customer who always requires a 30 to 45-day payment term.
Clarity of payment terms in your contract
- Have language that specifically says that on non-payment for X number of days, we are going to cut off access to a platform.
- Spell out what is the payment term. And what will happen in case those payment terms are not adhered to.
Challenges in taking the legal route
- If you're working in other jurisdictions that are outside of India, legal costs are extremely high, right.
- So unless you have ACVs of a few million dollars, chasing somebody and asking them to make payments, just because he signed a contract is not advisable.
Streamline your O2C on Day One
- Need everyone to be on the same page in terms of what the payment terms are.
- As you scale, you need to have a clean AR book to avoid due diligence disasters.
Consequences if not done on Day One.
- People of other teams start making decisions on behalf of the company. E.g. Sales Leads.
Stakeholders involved in the early days and how it changed over time
Early days, O2C is handled by AEs/AMs
Raising an invoice - Roles of sales
- AEs/AMs can either raise that request to raise an invoice if their CRMs are sophisticated enough like Salesforce.
- If CRM sophistication is not there, those functions will be taken over either with the finance team or the revenue operations.
Information to be captured before raising an invoice
- Who is the customer?
- What is their address?
- What is the duration of the subscription?
- What type of product are they buying?
- And all the respective product nuances.
- Finally, upload the contract.
Two Models of payments
- Pay & Use Model
- Pay Upfront
Key advice to finance execs to Avoid Pitfalls
Understanding discounts for different products & having a framework
Have a strong handle on Product Catalog. Know for which product we can offer discounts & have a clear discount matrix for it.
Need a Discount Matrix
- People might start selling at any price point that they want
- Know what are the areas that you can flex and what are the areas that you cannot flex
- Makes clear who is the person that you need approval from
Example of a Discount Matrix
- Who has the approval to discount? And how much?
- Regional lead has up to X%
- Head of GTM up to Y%
Tools and Tech Stack
Always raise an invoice as a subscription for a SaaS business and not a one-time invoice
- When you move to a larger subscription management tool, this data can be ingested.
- You can also get your KPIs out of the box when you connect to a revenue tool like Chartmogul.
Typical Finance tech stack evolves across stages. For companies at the starting of revenue, or monetization
- QuickBooks is a great option for the accounting platform. Because it also integrates with all the other kinds of software.
- Stripe for payment processing.
- In the case of a SaaS business, you want to get into subscription management tools as early as possible.
Subscription management, invoicing tool, and a payment gateway
- a payment gateway just accepts a payment from a different method. Whether it's a bank transfer, a card, or any other payment method, depending on which region of the globe that you're operating in.
- an invoicing tool is one on top of the payment method where they're able to send an invoice to your customer, and which allows the customer to have the ability to pay.
- subscription management tool does the invoicing for you and also manages the state of the subscription in your product backend.
- CRM comes on top of all the above-mentioned tools
- The way you structure and organize your CRM is going to go a long way, first in terms of keeping everyone together, and also making sure that everyone has the right visibility of the customers.
In terms of the System of Intelligence, Chartmogul is the leading platform. But there are some requirements for that
- you need to have configured your invoicing properly
- you should have raised those invoices as subscriptions
- Depends on if we are growing linearly or exponentially
- It's also important to figure out what are the metrics we're trying to move
E.g. If a tool is making the life of a sales rep easier, even by an hour, we can expect some kind of benefit, because they're able to shave off that portion of time from their sales cycle.
- And it may not be something that will happen today, it can happen down the line. And it's important for us to keep thinking about it.
- It's important that we forecast and figure out.
Key Metrics and Reports
Cash collection is the most important metric. Cash collected this month in comparison to the previous month & forecast of next month
Other important Metrics
- Sales Cycle
Looking at your sales cycle in terms of how long does it take for somebody to complete a sale.
- Day Sales Outstanding (DSO)
How many days a particular invoice is outstanding?
When & how to look at outstanding & cash collected
- Start following up on all our open invoices by the 15th of every month.
- Get a weekly report from 15th to 20th on outstanding & cash collected
- Get a daily report from 20th to 30th on outstanding & cash collected
- Depending on what time of the month, it is the frequency of our follow-ups that go up.
Rapid Fire with Naga
When do you start and end your workday?
9:30 to 11:30
How much sleep do you get?
8 hrs. Without which cannot function!
Podcast/Book suggestion for people joining fast-growing startups
The Official Saastr Podcast
Apart from core finance skills, what is the additional skill that a Finance Member can learn which will help them during the early fast-growing startup phase?
Something that you would do differently or take a different call during your personal or professional life if given a magical wish?
“Would have joined a SaaS startup way earlier in life”