Developing a Payment Strategy-Step 1-Appreciating why it critical to have a payments strategy?

This blog article seeks to explore what is involved in developing a payments strategy and it will therefore look in more detail at the first phase of five in total, which is determining why it is critical to have a payments strategy at all.

First of all let’s just define what the payments strategy needs to encompass and then determine why this is so important.

All businesses know that continuing revenue or positive cash-flow is their “life-blood” but few of these have a strategy or even a loose plan to ensure that this keeps flowing appropriately (by which we mean steadily and at a greater rate than costs are incurred). Revenue (as opposed to money from borrowings or equity) only comes in when a business bills for its products and services to its customers and when it receives payment in its bank account. As a result, the process that is used for up-front billing all the way through to the steps to finally collect payment need to operate efficiently and effectively-and this is not something that you want to simply let evolve (or leave to chance).

Whatever its size, a business should spend just as much time on its Payments strategy as it does on its Marketing strategy or Operations strategy. This is simply because all three of these strategies have to work together in order to be successful. Marketing and Sales create demand and get customers to buy in the first place (and will usually spend up-front money in doing so). Operations will fulfil the demand by delivering goods and services (once again spending money to do so). Finally then Accounting and Finance are charged with collecting money from customers, but need to do so in the best possible way (with as much choice as possible) and fast enough to ensure that money is well managed at all times (however seasonal or “lumpy” sales might be).

The first step in developing a Payments strategy, that balances all if the above well, is to understand the full billing to payment cycle. This cycle typically includes: preparing the invoice, issuing the invoice, offering payment channels, taking different kinds of payments, reconciling payments to invoices, banking payments and accounting for the whole payment transaction. In addition to these 7 core steps it might also include, tracking invoice and payment progress, dealing with queries and complaints and producing analysis and reports on payment transactions. Every one of these steps is a significant process by itself and therefore needs to operate smoothly on a stand-alone basis and as part of the overall process. A good Payment Strategy will therefore seek to specify how this can best be done at each step and in an overall manner.

In our next article in this series of five we will look at the next phase in developing the Payment Strategy- how to issue bills and invoices in a fast and efficiency way.