Dear SaaStr: My Customer Hasn’t Paid. When is it Worth it to Hire a Collections Agency to Get The Money?
Never.
I know it’s frustrating, but if you’ve turned off the app and they still won’t pay, it’s just time to move on.
It’s almost never worth it to hire a collections agency in SaaS. Here’s why:
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It destroys the relationship. If you’re in SaaS, you’re likely in a recurring revenue model. Even if the customer hasn’t paid, you’re probably hoping to retain them or at least keep the door open for future business. Sending them to collections almost guarantees they’ll never come back.
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Collections agencies rarely do much but threats. And they take a big cut. Most agencies charge 25-50% of the amount collected. So even if they recover the money, you’re losing a significant chunk of it.
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The effort almost always often outweighs the reward. Collections agencies are better suited for one-time transactions or industries where there’s no ongoing relationship. In SaaS, the time and energy you spend managing the collections process could be better spent on acquiring new customers or retaining existing ones.
- The customer didn’t get much value — or at least, isn’t now. If they were getting value, they’d pay if you just shut it off.
Instead of going straight to collections, here’s what I’d recommend:
- Escalate internally. Have your team send increasingly firm reminders, and involve more senior people on both sides. Sometimes a call from your CFO to their CFO can resolve things quickly.
- Offer a payment plan. If they’re struggling with cash flow, a payment plan can help you recover the money without burning the relationship.
- Leverage service access. If they’re way overdue, you can warn them that their service will be suspended unless payment is made. But be careful—turning off a mission-critical service can backfire, especially if they’re a big customer.
If none of that works and the amount owed is significant enough to justify the hassle, you might consider collections as a last resort in a few rare instances.
But in most cases, it’s better to write it off, learn from the experience, and tighten up your payment terms for future customers. It’s just a huge distraction in the end and it’s unlikely they’ll pay.
Spend that energy getting new customers.
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