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Managing accounts receivable

Having a robust process in place to manage subscriber arrears is crucial to a successful retail subscription offering

George Skentzos
Head of Customer Experience
Last updated on 
September 15, 2022
Introduction

Introduction

Sourcing Vehicles

Sourcing Vehicles

Procurement

Procurement

Financing

Financing

Acquiring Customers

Acquiring Customers

Above The Line

Above The Line

Point of Sale

Point of Sale

Key Value Propositions

Key Value Propositions

Discounts & Promotions

Discounts & Promotions

Lead Management

Lead Management

Inbound Lead Generation

Inbound Lead Generation

Outbound Lead Generation

Outbound Lead Generation

Managing Customers

Managing Customers

Customer Onboarding

Customer Onboarding

Customer Service

Customer Service

Customer Experience

Customer Experience

Legal Agreements

Legal Agreements

Receivables & Arrears

Receivables & Arrears

Collection & Handover

Collection & Handover

Delivery

Delivery

Fines & Tolls

Fines & Tolls

Breaches & Reposession

Breaches & Reposession

Insurance & Claims

Insurance & Claims

Eligibility

Eligibility

Claims Management

Claims Management

Incident Management

Incident Management

Fair Wear & Tear

Fair Wear & Tear

Fraud Risk & Prevention

Fraud Risk & Prevention

Managing Vehicles

Managing Vehicles

Subscription Structure

Subscription Structure

Profitability & Performance

Profitability & Performance

Recurring subscription revenue is uncharted territory for most automotive related incumbents who have largely honed their craft in one-time transactions associated with vehicle sales and finance. The benefit of recurring revenue is that, unlike a typical sales environment, earnings don't reset to zero at the start of every month. The inverse of this scenario is that managing arrears and accounts receivable becomes a crucial component in building a successful retail subscription offering.

Be aware of your accounts receivable and arrears

This should be obvious, but for an industry largely unfamiliar with recurring transactions it has to be said that you should regularly monitor invoices and payments, and be aware of customers that may be falling behind and taking steps to rectify this rather than acting only when it's already too late. Customer arrears typically fall into two categories:

Unintentional arrears

Usually caused by an unintentional oversight rather than anything deliberate or related to a lack of serviceability. This could include their payment method expiring, or a simple banking error. In the majority of cases unintentional arrears will be recovered through automatic payment retries, or dunning as it is known.

Intentional arrears

This is where a customer may have a serviceability issue or even a deliberate act to not make payment. When it is clear that a customer is intentionally in arrears swift action should be taken to recover the funds and the vehicle before the arrears becomes greater than the equity value of the most recent payments and the security deposit.

Setting a precedent for customer arrears

How you manage any initial arrears will dictate your customer behaviour over the long term. Should a customer fall into arrears without consequence, even legitimate customers may decide to push the boundaries of what is an acceptable level of arrears. It is important to have rigid processes in place to communicate with customers should they fall behind on their payments - especially in the first instance.

This would typically take the form of an email, SMS or phone call to reiterate the importance of ensuring a subscription is up to date and in good order. It is also worth reminding a customer that should their subscription fall into arrears and they are involved in an incident, it may impact the result of any claim.

How to follow up an arrears

A gentle reminder

Hanlon's razor is an adage or rule of thumb that states "never attribute to malice that which is adequately explained by forgetfulness". As a first step it is wise to assume that any arrears falls into the category of "unintentional arrears" and approached as such. A simple polite reminder is often all that is required as a first step and the majority of arrears will be recovered in this way without fuss.

We were unable to process the payment due for your car subscription.

We will try to process your payment again in 1 day. If you need to update the payment method for your subscription, please click here.

At this stage it is appropriate for the communication to appear automated (since it likely will be) however for first time offenders a phone call will go a long way toward correcting any potential long-term arrears habits.

A polite warning

If the arrears is not recovered within 2-3 days, a polite yet stern communication will be necessary that also outlines the repercussions of failing to make payment. The cadence at which these communications are received will typically need to fall within the current billing cycle to ensure the customer does not become more than one invoice behind in payment.

You will no longer be able to drive your subscription vehicle if your payment is more than 7 days overdue. Please make payment as soon as possible to ensure your damage cover remains valid.  

A $25 late payment fee will apply if your payment is not received on the next attempt in 2 days. If you need to update the payment method for your subscription, please click here.

Please note, your vehicle damage cover will no longer be valid if your account is overdue by more than 7 days.

A final ultimatum

Should the customer remain in arrears at this stage, it is important to escalate communications to reflect the seriousness of the situation. By this stage a tactic we suggest is to send an unformatted email to imply to the customer that the matter has reached your accounts receivable team.

ATT: (customer Name)

We note that payment for your car subscription is significantly overdue and your subscription is currently suspended and a late payment fee of $25 will be incurred. According to our records this was due to be paid by you on (invoice date) and remains outstanding. We require you to immediately finalise this payment using the below payment options.

Your vehicle damage cover is no longer valid. Do not drive the vehicle until all outstanding invoices have been paid.

Please note that if you fail to make payment within 3 days we will commence steps to initiate the repossession of the vehicle. All costs incurred in the repossession of the vehicle will be included in your outstanding balance for payment and deducted from your security deposit.

Regards,
Accounts Receivable Team

Escalating the debt recovery

If by this point the debt remains in arrears, your next step should be to issue the customer with a breach notice and encourage either full payment, or the return of the vehicle, or both. The breach notice acts as an official written notice to the customer that further action will be taken likely in the form of a vehicle repossession.

Vehicle repossessions can be costly, however a swift recovery is often favourable to a number of unpaid invoices on top of the cost of recovery.

Keeping a record of arrears follow up

Ideally each stage of the arrears recovery process should be recorded either in a subscription management platform like Loopit, or in a CRM. This should include a detailed history of any phone calls - whether attempted or successful - as a thorough papertrail will demonstrate the level of effort made to collect the debt which will then support any subsequent arbitration if required.

About the author
George is the Head of Marketing and Customer Experience at Loopit. Having originally started his career as a motoring journalist and founding team member for one of Australia's top automotive startups, George has a strong passion for automotive, business and growth marketing.
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