According to figures released by the payments council at the beginning of 2011, debit card expenditures more or less matched cash expenditures for the first time ever in the UK (and are expected to outstrip it easily in 2011). According to the statistics, there were around 6 billion purchases made using debit cards in the UK during the previous 12 months, an annual rise of nearly 9% and these transactions were worth a combined £265 billion, at an average value of £44 (up 7.5% overall). Yet while there were the much greater 21.4 billion cash transactions made in that same period (which was nonetheless down by 5.2%), the total value of these payments fell by 0.4% to about the same £265 billion figure.
Now clearly, these figures do not mean that cash is disappearing any time soon, especially since these lower average expenditures of £12 or less are often most conveniently settled by cash. However, it does signal that a lot of non-retail spending in particular is shifting to debit card use (and even some retail too with the interest in payment using NFC technology and smart phones in the near future) and perhaps the greatest area in which this likely to be significant is in paying bills (especially those sent from Government or Business to consumers).
What is driving this trend is that cheque writing is falling steadily (and of course is planned to disappear by 2018 in the UK). In fact, over 100 million fewer cheques were written in the UK in 2010 by consumers and it is the debit card that seems to be the preferred alternative, rather than the credit card. In 2010, credit cards accounted for £125.4 billion worth of payments, an annual fall of 0.7%, with 2 billion separate purchases (making an average credit card transaction £63). Hence, debit card transactions outnumbered credit card payments by three to one and represented more than twice the overall spend.
So what does all of this change mean for organisations on how they currently do business? Well first and foremost, accepting payment by debit card becomes pretty critical. Many small businesses (and even a few medium to large ones) do not at the moment and may well lose customers to competitors in the future. Beyond this perhaps obvious issue is the fact in the modern world people are happy to save as much time as they can and a debit card can often meet this need for faster transaction time and greater convenience (especially when paying over the web).
The benefits of accepting, and even encouraging debit card payments are many for the organisation and include:
•Less trips to the bank (with cash and/or cheques)
•Greater security (with less cash and cheques to keep safe)
•Extended opening hours for payment (allowing customers to pay by telephone or over the Internet 24/7 and 365 days a year-an outcome that can be set up immediately with a relationship with a web billing and payment portal such as PaySwyft.
•A faster transfer of funds to the organisation’s bank account than most other methods
•Generally cheaper than handling cash or credit cards
•Typically much lower charge-back risks than with credit cards
Each of the above is probably compelling reason enough for any business to take debit card payments, but in combination and given this payment type’s rapidly increasing popularity amongst consumers, the decision becomes extremely compelling in today’s fast-moving commercial climate.
Thursday 21 July 2011
Sunday 10 July 2011
Can Better Billing Practices Improve Merchant Cash-flow, Cost Effectiveness and Customer Satisfaction?
This blog article explores whether more efficient and effective billing practices deliver greater Cash-flow, Cost effectiveness and Customer Satisfaction for the merchant and more Convenience, Clarity/Certainty and Choice for the consumer-the 6 C’s
Billing is never the most exciting of subjects for business owners or managers, coming as it does as the last and perhaps most administrative or clerical step in the sales to delivery cycle. However, being a last step should not relegate it to being the least important and there is actually plenty of evidence to suggest that efficient billing practices may be one of the most critical. In this article we will therefore briefly explore why better billing practices can have a significant impact on cash-flow, cost-effectiveness and customer satisfaction for the merchant (as well as several equally beneficial, and linked, outcomes for their customers).
Before we look at each of these 3 merchant benefits in turn, let’s define what we mean by “efficient billing practices”. Presenting a bill or invoice can clearly be done in person (albeit rarely), in the physical mail (with a stamp), via an email (typically with a PDF attachment) or by digital means (via an Internet web site). All four of these options can be relatively “efficient” if they reach the right person quickly and facilitate the earliest possible settlement. However, experience (and much research) tells us that these practices are likely to be progressively more effective in the order in which they are listed. In other words, a full digital presentment of the bill is likely to be a much better option that delivering a bill by email, which in turn is better than doing so by physical mail etc. In this article we will therefore assume that a merchant will have, or aspire to have, the most efficient and effective approach –a full digital e-bill and it will be our contention that getting this bill delivered allows all the benefits we will elaborate upon subsequently to follow. The diagram below illustrates this rather more visually.
© PaySwyft, 2011. All Rights Reserved
Greater Cash-flow
The vast majority of organisations that supply a product or render a service to another organisation, or an end consumer, usually do so on credit terms (a lucky few get paid ahead of time of course). To operate somewhat like a lending bank, an organisation must therefore use shareholder funds, cash in its bank account, supplier credit (if they have any) or other money that is borrowed in some way (with interest being payable). These credit terms, or what is sometimes easier to visualise as the time taken to receive payment from customers, can have a huge impact on the working capital needed by a business and thereby have a critical affect on cash-flow. From the point of the delivery, spending days preparing and sending an invoice along with offering normal credit terms for a given industry (say 30 day terms on average), might mean that a particular enterprise may have an average days outstanding in practice of 40-45 days to get paid. Even for a relatively small business turning over say £500,000 a year this would mean working capital of £30,000 needs to be maintained just to stay in business (or in this case 6% of turnover).
Given the above, if a merchant takes its billing practices seriously, it should present an invoice to the customer in the fastest way possible (ideally digitally, the day after delivery-or even the same day perhaps). In addition, with a full digital bill, an opportunity can be offered to check that the bill has all the information that the customer needs to see and in as much detail and as they need to see it. This creates clarity and certainty that they are paying appropriately for what they have received. On a digitally presented bill, “clickable” payment options can allow the customer to render payment immediately (at the same web site and in the same session) or perhaps schedule a payment there and then (especially if there are multiple payment choices available, which we will look at later). All of this combines to ensure that invoice days outstanding are reduced, in some cases by up to 30-40%. This clearly has a very positive impact on cash-flow and allows working capital to be reduced or freed up for other uses (in the above small business example it could lead to 2-3% of total revenue in savings).
Greater Cost Effectiveness
It is estimated that physical bills (paper-base ones) still account for around 80% of the total volume of bills in all major economies, where there is good data to measure it such as the UK, Australia, Canada, France, Holland, Germany, New Zealand, Singapore, Sweden, and the US (amongst others).
The direct costs of preparing an invoice and sending it in the mail alone are relatively high, especially in an age when we can send almost any document electronically. However, they are even higher when you factor in the indirect costs associated with the potential for keying errors, mis-delivery and loss and the extra time often needed for accounting and reconciliation (to name but a few problems). The email based bill (now accounting for around 15% of the total volume of bills according to most research) removes some of the direct costs above, but almost none of the indirect costs of keying errors and mis-delivery, and extra time needed for accounting and reconciliation. The full digital bill is the only option therefore which has the scope to make a large dent in both direct and indirect costs.
With a well-designed system, a fully digital billing approach allows the customer to see the full bill immediately it is delivered (24/7 and 365 days a year) to analyse it versus other bills from the same merchant potentially and to immediately effect payment (or plan for it to occur on the system). This therefore affords much greater customer convenience (especially when they can use the system for their own personal bill storage and not have to wait for a merchant call-centre to be open to take a payment, for instance). However, the major benefits to the merchant are in having a full electronic record of each transaction (individually or in aggregate), with as much detail as they wish to see. And by maintaining the whole billing process in electronic form, all the data can flow in digital form in all directions, including reconciliation in the accounting system-thereby saving many labour hours and costs.
Greater Customer Satisfaction
When customers are asked about their overall experiences of organisational billing (in general) they will tend to mention three factors more than any other.
The first is that it should offer “clarity and certainty”. By this they typically mean that it should be a clear and easy to follow invoice, be accurate, be securely delivered to them and reflect what they have purchased in a certain way.
Secondly, they will typically say that a bill should be “conveniently” presented. Mailing it may meet this need (physically or by email) but digitally allows it to be viewed at any time day and night and, if it is user-friendly enough, can allow for further detail to be scrutinised, when desired.
Thirdly, and perhaps most importantly, customers will nominate the need for “choice” to be available to them. On the presentment side this may be whether to pay the bill now or later or to set up a scheduled or recurrent payment (with associated electronic alerts and reminders to an email account of mobile phone, as needed). On the payment side, this may be to have lots of immediate and widespread payment types or options to be used on both the debit and credit side if possible. In a well-designed digital billing web site, all of this can be available with an even greater range of choices being available in terms of individual customer preferences, in many cases.
Summary
In conclusion then it should by now be clear that the apparently basic and administrative item of a simple bill to a customer can be presented in a way that can have a significant bearing on Cash-flow, Cost Control and Customer Satisfaction. A well-designed and fully electronic or digital billing process will typically give the best results and all organisations should therefore consider moving to such a system as quickly as possible, especially if they can add it as an additional channel to existing practices (minimising disruption) and on a pay-as-you-go basis (as offered by systems such as PaySwyft for example).
Billing is never the most exciting of subjects for business owners or managers, coming as it does as the last and perhaps most administrative or clerical step in the sales to delivery cycle. However, being a last step should not relegate it to being the least important and there is actually plenty of evidence to suggest that efficient billing practices may be one of the most critical. In this article we will therefore briefly explore why better billing practices can have a significant impact on cash-flow, cost-effectiveness and customer satisfaction for the merchant (as well as several equally beneficial, and linked, outcomes for their customers).
Before we look at each of these 3 merchant benefits in turn, let’s define what we mean by “efficient billing practices”. Presenting a bill or invoice can clearly be done in person (albeit rarely), in the physical mail (with a stamp), via an email (typically with a PDF attachment) or by digital means (via an Internet web site). All four of these options can be relatively “efficient” if they reach the right person quickly and facilitate the earliest possible settlement. However, experience (and much research) tells us that these practices are likely to be progressively more effective in the order in which they are listed. In other words, a full digital presentment of the bill is likely to be a much better option that delivering a bill by email, which in turn is better than doing so by physical mail etc. In this article we will therefore assume that a merchant will have, or aspire to have, the most efficient and effective approach –a full digital e-bill and it will be our contention that getting this bill delivered allows all the benefits we will elaborate upon subsequently to follow. The diagram below illustrates this rather more visually.
© PaySwyft, 2011. All Rights Reserved
Greater Cash-flow
The vast majority of organisations that supply a product or render a service to another organisation, or an end consumer, usually do so on credit terms (a lucky few get paid ahead of time of course). To operate somewhat like a lending bank, an organisation must therefore use shareholder funds, cash in its bank account, supplier credit (if they have any) or other money that is borrowed in some way (with interest being payable). These credit terms, or what is sometimes easier to visualise as the time taken to receive payment from customers, can have a huge impact on the working capital needed by a business and thereby have a critical affect on cash-flow. From the point of the delivery, spending days preparing and sending an invoice along with offering normal credit terms for a given industry (say 30 day terms on average), might mean that a particular enterprise may have an average days outstanding in practice of 40-45 days to get paid. Even for a relatively small business turning over say £500,000 a year this would mean working capital of £30,000 needs to be maintained just to stay in business (or in this case 6% of turnover).
Given the above, if a merchant takes its billing practices seriously, it should present an invoice to the customer in the fastest way possible (ideally digitally, the day after delivery-or even the same day perhaps). In addition, with a full digital bill, an opportunity can be offered to check that the bill has all the information that the customer needs to see and in as much detail and as they need to see it. This creates clarity and certainty that they are paying appropriately for what they have received. On a digitally presented bill, “clickable” payment options can allow the customer to render payment immediately (at the same web site and in the same session) or perhaps schedule a payment there and then (especially if there are multiple payment choices available, which we will look at later). All of this combines to ensure that invoice days outstanding are reduced, in some cases by up to 30-40%. This clearly has a very positive impact on cash-flow and allows working capital to be reduced or freed up for other uses (in the above small business example it could lead to 2-3% of total revenue in savings).
Greater Cost Effectiveness
It is estimated that physical bills (paper-base ones) still account for around 80% of the total volume of bills in all major economies, where there is good data to measure it such as the UK, Australia, Canada, France, Holland, Germany, New Zealand, Singapore, Sweden, and the US (amongst others).
The direct costs of preparing an invoice and sending it in the mail alone are relatively high, especially in an age when we can send almost any document electronically. However, they are even higher when you factor in the indirect costs associated with the potential for keying errors, mis-delivery and loss and the extra time often needed for accounting and reconciliation (to name but a few problems). The email based bill (now accounting for around 15% of the total volume of bills according to most research) removes some of the direct costs above, but almost none of the indirect costs of keying errors and mis-delivery, and extra time needed for accounting and reconciliation. The full digital bill is the only option therefore which has the scope to make a large dent in both direct and indirect costs.
With a well-designed system, a fully digital billing approach allows the customer to see the full bill immediately it is delivered (24/7 and 365 days a year) to analyse it versus other bills from the same merchant potentially and to immediately effect payment (or plan for it to occur on the system). This therefore affords much greater customer convenience (especially when they can use the system for their own personal bill storage and not have to wait for a merchant call-centre to be open to take a payment, for instance). However, the major benefits to the merchant are in having a full electronic record of each transaction (individually or in aggregate), with as much detail as they wish to see. And by maintaining the whole billing process in electronic form, all the data can flow in digital form in all directions, including reconciliation in the accounting system-thereby saving many labour hours and costs.
Greater Customer Satisfaction
When customers are asked about their overall experiences of organisational billing (in general) they will tend to mention three factors more than any other.
The first is that it should offer “clarity and certainty”. By this they typically mean that it should be a clear and easy to follow invoice, be accurate, be securely delivered to them and reflect what they have purchased in a certain way.
Secondly, they will typically say that a bill should be “conveniently” presented. Mailing it may meet this need (physically or by email) but digitally allows it to be viewed at any time day and night and, if it is user-friendly enough, can allow for further detail to be scrutinised, when desired.
Thirdly, and perhaps most importantly, customers will nominate the need for “choice” to be available to them. On the presentment side this may be whether to pay the bill now or later or to set up a scheduled or recurrent payment (with associated electronic alerts and reminders to an email account of mobile phone, as needed). On the payment side, this may be to have lots of immediate and widespread payment types or options to be used on both the debit and credit side if possible. In a well-designed digital billing web site, all of this can be available with an even greater range of choices being available in terms of individual customer preferences, in many cases.
Summary
In conclusion then it should by now be clear that the apparently basic and administrative item of a simple bill to a customer can be presented in a way that can have a significant bearing on Cash-flow, Cost Control and Customer Satisfaction. A well-designed and fully electronic or digital billing process will typically give the best results and all organisations should therefore consider moving to such a system as quickly as possible, especially if they can add it as an additional channel to existing practices (minimising disruption) and on a pay-as-you-go basis (as offered by systems such as PaySwyft for example).
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