Subscription Management Software – Improve Business Cash Flow

May 28, 2024

Cash flow is the lifeblood of any business. The flow of capital affects the financial stability and viability of your company. Managing cash flow effectively can be a daunting task, especially for businesses that rely on subscription-based models. That’s where subscription management software comes into play.

According to a U.S. Bank study, 82% of business failures are due to poor cash management.

In this blog, we will explore what a subscription business is and how subscription management software can significantly improve the cash flow of your business.

What is a subscription business?

A subscription business is one in which customers pay regular, usually recurring fees to gain access to a product or service. Customers subscribe to receive ongoing value or benefits over time rather than making one-time purchases. Subscription models are gaining popularity in a variety of industries due to their ability to generate predictable, recurring revenue and long-term customer relationships. Products and services that are required daily or after a fixed time are the best fit for a subscription business.

Here are some key characteristics and examples of subscription businesses:

Recurring Revenue – Subscription businesses rely on regular, often monthly or annual, payments from their customers. In contrast to companies that rely on one-time transactions, this steady income stream can offer more financial stability and predictability.
Continuous Service or Product Access – Subscribers have continuous access to a service or product for the duration of their subscription. This could include software, streaming services, magazines, gym memberships, and other items.
Customer Retention – Subscription businesses are concerned with long-term customer retention. Customer satisfaction, service quality, and value for money are critical factors in reducing subscriber churn (cancellation of subscriptions).
Tiered Pricing – Many subscription businesses offer multiple subscription tiers with varying features or levels of service, allowing customers to select the plan that best meets their needs and budget.
Personalisation – Subscribers frequently receive personalised content and recommendations based on their usage patterns and preferences. This improves the customer experience and encourages repeat subscriptions.
Free Trials and Freemium Models – Some subscription businesses offer free trials or freemium versions of their products or services to attract and retain customers. These free services can be upgraded to paid subscriptions with enhanced features.
Cancellation Flexibility – Subscription businesses typically allow subscribers to cancel at any time. This adaptability is critical for retaining customers and lowering entry barriers.

A subscription business provides products or services to customers regularly in exchange for regular payments. The need to develop long-term customer relationships while maintaining financial stability through predictable, recurring revenue is what motivates this model, which has transformed numerous industries.

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What is subscription management software?

Subscription management software is a specialised type of software designed to streamline and automate the management of subscription-based businesses. It offers features and tools that enable businesses to plan, administer, charge for, and evaluate their subscription services.

What is cash flow and why is it important?

It is the movement of money in and out of the business over a defined period. It indicates the amount of money that a business makes and spends on operations, investments, and money management. Positive cash flow indicates that the business is generating more money than it is spending. Maintaining a positive flow of cash is important to holding liquidity, funding operations, paying debts, and making investments. On the contrary, negative cash flow indicates that the business is spending more money than it is generating, which leads to financial difficulties.

It is important to understand and manage cash flow to ensure the financial health and operational stability of the business. Having a good understanding of cash flow can help you plan your future expenses, avoid liquidity crises, and make informed decisions on investments and financing.

Three types of cash flows in business

Cash flow from operating activities (CFO) – These are standard business activities that include the inflow of revenue from sales, interests, and dividends. The outflow of cash includes rent, salaries of employees, taxes, and payments.
Cash flow from investing activities (CFI) – It includes losing or gaining money in short- or long-term investments. This can be an investment in technology or any other asset.
Cash flow from financing activities (CFF) – These include transactions from the business’s owners and creditors. These transactions can be borrowing or repayment of debt, paying dividends, and issuing or purchasing stocks.

How to calculate cash flow?

Formulae to calculate cash flow

Net cash flow – It is the overall money that is generated and spent-
Net cash flow = initial cash balance + net-cash inflow – total cash outflow
Operation cash flow – Cash that is generated from the core of the business i.e. operations.
Operation cash flow = operating income + non-cash expenses – taxes + changes in working capital
Free cash flow – The cash that is available after maintaining and expanding business assets.
Free cash flow = net operating profits – capital expenditure

Note* – net operating profits are after paying taxes.

How can it help improve the cash flow?

Streamlining subscription billing

Subscription management software streamlines the billing process, increasing efficiency and accuracy. These systems automate the entire billing cycle, replacing manual invoicing and payment tracking. This means that customers are billed on time and payments are collected on time, reducing late or missed payments, which can disrupt cash flow.

Benefits of streamlining subscription billing

Ensures that you’ll receive predictable and steady income.
Eliminated the need to send out invoices every month, saving time and reducing the risk of human errors.
An improved billing process ensures smoother cash flow

Flexible billing options

Retaining customers is an important aspect of maintaining a healthy cash flow. Subscription management software enables businesses to provide flexible billing options, such as monthly, quarterly, or annual subscriptions, as well as customisable plans. These options give customers more control over their subscriptions, increasing the likelihood that they will renew their memberships.

Benefits of offering flexible billing options

Diverse subscription plans and billing cycles appeal to a wider audience and reduce churn.
Satisfied customers are likely to stick with the brand, contributing to a stable and consistent cash flow.

Automated payment processing

Subscription management software typically integrates with a variety of payment gateways, enabling seamless and secure payment processing. This automation ensures that payments are collected on time, eliminating the hassle of manual payment tracking and lowering the risk of late payments.

Benefits of automating the payment process

Reduces the likelihood of declining payments due to expired cards or other issues.
Ensures you continue to receive revenue without disruptions by sending automated payment reminders and updates.

Furthermore, these software solutions enable businesses to provide incentives, such as discounts or special promotions, to existing customers to retain them. You can ensure a more consistent cash flow by focusing on customer satisfaction and retention.

Accurate revenue forecasting

Subscription management software provides valuable data and insights into a company’s subscription revenue. This information can be used to generate accurate revenue forecasts, which are essential for sound financial planning. Businesses can make informed decisions about investments, expenses, and growth strategies when they know exactly how much revenue to expect in the coming months.

Benefits of having accurate revenue forecasting

Ensures that the business maintains a comfortable level of liquidity and is prepared for any challenges.
Allows to take advantage of growth opportunities without jeopardising cash flow.

Automate subscription management

Manual subscription management can be time-consuming and labor-intensive. Subscriptions, billing, and customer support are all areas where businesses must devote significant resources. Subscription management software automates these processes, lowering administrative burdens and costs.

Benefits of subscription management

Allow businesses to operate more efficiently, reducing the need for a large administrative staff.
It helps save money and maintain positive cash flow by minimising operational expenses.

In today’s subscription-driven business environment, managing cash flow is more important than ever. Subscription management software provides a comprehensive solution for improving cash flow by automating billing, reducing churn, retaining customers, and providing accurate revenue forecasting. With the right software in place, your company can enjoy consistent, predictable revenue streams and achieve financial stability. Investing in subscription management software not only improves cash flow but also positions your company for long-term growth and success in the subscription economy. Book your demo to see how Trakop can help your subscription business.

FAQs

Q1. What is subscription management software?
A1. Subscription management software is a type of specialised software that is used to manage and automate various aspects of subscription-based business models. It simplifies the management of recurring billing, customer subscriptions, and associated processes for businesses that offer subscription-based products or services.

Q2. How can subscription management software help you manage orders?
A2. Subscription management software plays a crucial role in managing orders, especially in businesses that rely on recurring subscriptions for their products or services. It automates order processing, and offers centralised order management, customisation and flexibility, inventory and fulfilment management, billing and revenue management, and customer management and support.

Q3. Does subscription management software have a route optimisation feature?
A3. Yes, our subscription management software has a route optimisation feature that runs algorithms to create the shortest delivery path, decreasing fuel consumption and delivery costs.

Q4. Can I manage my buffer stock with drivers with subscription management software?
A4. Yes, you can manage buffer stock with the drivers. To see how you can do so, Book a Demo.

Q5. Is subscription management software scalable?
A5. Yes, subscription management software is an ERP solution that is flexible, allows you to add as many customers as possible, and helps businesses scale and expand.

Hope You Enjoyed the Read!

ravi garg, trakop, founder signature image

Ravi Garg Founder & CEO

He loves to explore. His passion for helping delivery industries in all aspects flows through in the vision he has. In addition to providing smart solution to make delivery process flawless, Ravi also likes to write sometimes to make it easier for people from business industry looking for digital solutions.