Filling SaaS Firms’ Slippery Cash Gaps | PYMNTS.com

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Software-as-a-Service and subscription revenue business models have exploded in recent years, largely due to the invaluable benefit of having cash flow predictability.While it can be expensive to acquire customers, ensuring that payments will be made at the same time every month is an attractive asset to a SaaS business, particularly younger ones in growth mode. Yet the recurring revenue model isn’t always an asset, according to Miguel Fernández Larrea, co-founder and CEO of Capchase.”Revenue comes in two shapes,” he told PYMNTS in a recent interview, explaining that a customer usually has the choice to pay month-to-month or to receive a discount for paying for service upfront. When customers choose the monthly payment plan, “there is a cash gap at the beginning, which SaaS companies need to fund in some way.”In other words, while receivables are booked as a result of a customer signing a contract to pay on a periodic basis, the SaaS company still has to provide service while waiting for the next payment. And that, said Larrea, can spell trouble for SaaS firms in need of working capital.Upfront CostsIn addition to having to provide services while a customer pays for those services in installments, …

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