In 2000 Blockbuster Video made $800 million, or roughly 16% of its total revenue, in late fees. I know, because I paid some of those fees! They essentially weaponized their collections process, and ticked off millions of customers in the process. We all know what happened next. Blockbuster got Netflixed.
Chances are, however, that today Netflix has its own collections problem – and no, it’s not just account sharing. How do I know? While it doesn’t disclose its bad debt numbers, Netflix has a collections problem because all major B2C subscription companies have a collections problem. On average, these companies lose about 9% of their annual revenue due to failed payments.
B2B subscription businesses tend to have better collection rates compared to B2C due to dedicated customer teams, but collections are still a significant issue for them. Take delayed payments, for example. It’s not unusual for a B2B company to have 20 to 40% of their revenue still outstanding after a typical 90-day collection window.
Why am I talking about this? Well, here at Zuora we just launched a new Collections product, and it’s making me realize how far the process has evolved in the Age of Monetization. We’ve come a long way from the bad old days of “pay up, or else.”
Most collections processes were designed for transactional, one-time payment businesses where the goal was to recover as much money as possible from products that were already shipped, or services that were already rendered. Essentially, you were shaking people down, hoping to get eighty cents on the dollar. But in a recurring revenue business, we’re talking about ongoing customer relationships. That traditional mindset is outdated, and puts your whole business at risk.
In this new world, success means building trust, preserving renewals, and expanding relationships over time, not sacrificing future revenue for short-term recovery. The Blockbuster approach simply doesn’t work. The old model treats collections like a one-and-done function. It sends the same message to every customer. It has no context on renewals, account health, or customer potential. And it’s completely blind to historical behavior that can predict future cash flow because it isn’t relevant to their business model.
For recurring businesses, that’s a critical gap. Understanding who consistently pays late, who’s trending toward churn, and who’s ramping up their spend can’t be an afterthought. That is the key to forecasting revenue and protecting your customer base.
It’s also critical to maintaining a seamless customer experience. A siloed collection team can create all kinds of confusion. One part of your company is sending out smiles and promotions, while the other part is delivering scowls and stern payment warnings. Maintaining cash flow is important, but you don’t want to create a siloed finance department that’s essentially dedicated to yelling at your customers.
The best AR teams don’t treat collections as a perpetually unsolvable crisis. They treat collections as a huge pile of potential value to be unlocked. They look for signals that indicate potential churn, and reach out in order to solve the issue before it becomes a problem.
They’re not reactive; they’re anticipatory. They seek to answer questions like the following (often with the help of AI and automation):
- Which customers or accounts are most at risk of not paying this month?
- Which of them have promised to pay?
- Have they followed through in the past?
- What’s the predicted payment from our biggest accounts?
- How much committed cash is actually likely to land this month?
And crucially, they work in concert with the rest of their company. And in order to do that, it really helps to know what everyone else is doing. When you can see the full picture from order to cash (including things like key accounts and support tickets) you can a) figure out the right approach to an issue without b) stepping on other people’s toes and c) weirding out your customer.
Perhaps the next time Netflix warns you that your credit card has expired, it also tells you all the hit shows you’ve missed that everyone is talking about.
How do you think the collections process has changed over time? Feel free to share your thoughts in the comments.
