Or why does 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).
