Many non-for-profit organisations (NFPs) are hoping to make the transition to becoming commercial enterprises, according to research by the University of Technology, Sydney (UTS).
The research found that 70 per cent of companies applying for the Westpac Foundation grant program had created a three or five year plan to move away from their NFP status and become a commercial enterprise in the future.
A childcare business, for example, may find their ability to maintain a high level of service benefited from becoming a more commercially driven organisation.
The reasons, UTS said, is to respond to both growing costs and increased demands for services, which has created a funding gap between government grants and charitable support.
Dr Danielle Logue, a researcher at UTS Business School stated that "government funds and donations are limited."
"Funding needs to be mobilised from other sources to address the compelling social and environmental problems facing the world," she continued. "That means the Australian not-for-profit sector is in a state of transition."
With more organisations planning to give up their not-for-profit status to adopt a more commercial model, the way a business brings in money is soon to come under the microscope.
Some will find that their income methods are too weak to achieve a vision of profitability, with ad hoc payments and poor donor or customer retention leaving their bottom lines wanting. Others will strive for consistency in order to plan better budgets and achieve a 3 or 5 year plan.
Automating receivables will give a company the security going forward to plan and reach its goals, as well as providing a better customer-facing service for continued profitability.
Essentially, it all boils down to simplicity – for the NFP and the customer. This is what direct debit for business offers.
Improve income through recurring revenue
In the UTS study of 132 grant applicants, around 60 per cent said their enterprise was hampered by financial challenges, such as increased operational costs. One-quarter also attributed a decrease in government funding and support, making somewhat of a double-edged sword for organisations that are trying to grow.
By integrating a direct debit solution, customers or donors are encouraged to pay for the service by subscription, providing a steadier flow of income as well as improving retention rates.
This equates to a greater overall income, a better view over an organisation's finances and a more sustainable method of preparing an enterprise for further growth.
What's more, the low cost of direct debit and reduced administration times make for a cheaper model than what may be used to secure income today.
Prioritise paying customers
A UTS media release accompanying the research said that companies taking the route from NPO or social enterprise to commercial organisation can be hampered by their clientèle.
The September 2014 release said: "Social enterprises often work with people who don't have the financial means to pay, so the business model must differentiate between those clients and paying customers, with separate value propositions."
Once an NFP becomes a commercial entity, they will have to tell the difference between paying customers and those unable to.
By providing a structure of recurring payment, direct debit gives a customer the means to budget for the expenditure of the service. If customers cannot pay for the service, direct debit gives the organisation the time to address the situation without losing money. And with the right cloud payment facility, payments are marked as received in real-time creating amazing clarity of customer viability.
From an SMS reminder service to improved client information, direct debit integration gives people every chance to pay regularly, and gives businesses the means to prioritise paying customers.
Create a plan for the future
It can be difficult for non-profit organisations to create an ambitious yet realistic 3 to 5 year plan. Funding is not guaranteed and income can be sporadic at best.
Projecting where a company could be in half a decade can be like looking into a crystal ball, and this is even more of a concern for NFPs with funding issues.
Much of this weight can be removed with direct debit reporting software. Customer payment information is displayed with clarity and depth, giving users total control over their income and a means to plan for the future.Improving the income structure with direct debit can help an NFP reach maximum funding, or give them a leg-up in their effort to become a commercial business.