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.

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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).

What is the difference between “push” versus “pull” on-line billing?

The terms “push” and “pull” are now commonly mentioned when on-line billing is being described, but what do these terms actually mean in this context and what is the advantages of one over the other?

A “push” based on-line billing process essentially means that a consumer is prompted or alerted directly with a full invoice, statement or other document describing what has been purchased and what needs to be paid. This is therefore what is commonly called a “rich” document. For the most part, push-based on-line billing systems are carried out as e-mail notifications with attachment files (such as a PDF for example).

A “pull” based on-line billing process will still alert a consumer that an invoice is ready to be paid but instead of including the rich document, invites the consumer to go to a nominated web site where they can find the full bill to be viewed and subsequently be paid in digital form. Both e-mail and text messaging can be used to simply alert the customer, but merchants may elect to use off-line notifications (letters, paper-based invoices etc) as well.

Both push and pull models on online billing offer merchants the opportunity to reduce or eliminate paper invoices over time but each has advantages and disadvantages.

The advantages and disadvantages or Push-based on-line billing
Push based on-lined billing has the advantage of using a very common and familiar system that most businesses and consumers now use with relative ease -their email. Recipient addresses are unique and go straight into an inbox to be read either immediately or when the person opens their email system. In addition, emails are now readily received on mobile phones and other portable devices, allowing for very fast delivery, flexible viewing and (in some cases) access to online payment options.

Despite the above, there are a number of drawbacks with this push-based delivery model. They include:
* An email address may be incorrect or not reach the right recipient directly
* Many individuals and even organisations may have inbox restrictions the size of incoming emails. This will limit the opportunities for presenting invoices (especially when the attachment is large in size).
* Staff turnover in businesses and changes to email addresses by consumers means that it is often difficult to ensure the complete integrity of email addresses.
* Recipients can claim that they never received an email with an attached e-bill
* It is not always easy to differentiate copy invoices from original invoices with push on-line billing.
* An attachment (such as a PDF) is still only a piece of paper. A consumer may just print it and pay it offline and/or a merchant cannot easily reconcile the data (needing to key in the data again).

The advantages and disadvantages or Pull-based on-line billing
In Pull-based on-line billing, an email is more equivalent to a paper-based notification in the physical mail and simply serves to alert the customer that an invoice is available for viewing and processing at the nominated billing website (the biller’s own or a third-party aggregator’s one). As well as presenting the invoice a fully digital and therefore clickable format, web 2.0 internet technology also makes it possible to distinguish between the original and copy invoice. In addition, this fully digital format makes for very simple upload or transfer to an accounting system, thus eliminating any requirement to key in data manually and greatly aiding the reconciliation process. In addition, full digitisation allows the recipients to view their bill and render payments all on-line, at the same web site (which they may choose to do as soon as it is received).

Just as with Push based on-line billing, there are nonetheless a number of drawbacks with this pull-based delivery model. They include:
* Recipients may forget their logins and passwords to the billing web site to which they are being directed
* Recipients may not trust the web site to which they are being sent, or least feel nervous about the security offered (especially where payments are concerned)
* Consumers may be confused with what is likely to be a simplified bill or one which approximates to the one they receive in the mail-it is often similar but not the same.
* The billing web site may not be very user-friendly (leading to consumer abandonment)

So, in summary, we can say that both push and pull on-line billing have many advantages worth considering but also have a range of disadvantages that need to be considered one-by-one according to each merchant’s needs. In overall terms perhaps there are less onerous disadvantages on the “pull” side, and it is this approach consequently has the present advantage. However, as usual in the online world, choice and convenience are always key considerations, and it may well be that offering both a push and a pull-based solution offers the best outcome of all (and most quickly attains the paperless system than many merchants may crave).

Why do all businesses need a Merchant Account and what is the best way to go about getting one?

Traditionally, to be afforded the opportunity to accept credit and debit cards from their customers any organisation (typically called a “merchant” by the financial services industry) must be granted so-called “proper” status as a bank. This proper status is given to a merchant through the vehicle of a unique Merchant ID (or MID) from the bank and allows them to participate in the payments chain. Pretty much all large businesses have a merchant account like this. However, the smaller the organisation gets, the less likely that they will have one and may be missing out on the benefits.

The banks which provide a merchant account are not quite the same as the ones with which we are most familiar as personal current account holders. All major high street banks have what is known as an “acquiring” bank arm or division. For example, in the UK NatWest has 'Streamline', Lloyds-TSB has 'Cardnet', HSBC has 'HSBC Merchant Services' and so on. In addition, some organisations outside the high streets banks (like American Express and PayPal for instance) have a license and do their own acquiring. Subject to a range of pre-conditions, all these “acquiring banks” issue a Merchant ID and allow an organisation of any sort to start taking credit and debit cards. They will then approve or decline each customer transaction made, collect any payments on the merchant’s behalf and pay the money into a merchant’s nominated bank account.

There are clearly costs involved in setting up this merchant account - in most circumstances the acquiring bank will include setup charges, monthly or annual fees, monthly rental of a physical terminal (or PDQ machine) for the merchant to process card details, and they may require a merchant to pay for a dedicated telephone line for the terminal. A merchant will also be charged a percentage of each transaction which they process, may have a minimum monthly volume of business imposed, and in some cases, have to provide a substantial “bond” or deposit as additional security (to cover any potential card “charge-backs” that may occur).

Sadly perhaps, that's the relatively easy part of the process! - before a merchant can even start the process, they will have to convince the acquiring bank that they are worthy of their trust, and a merchant will usually have to provide two years audited accounts and demonstrate a sound business track record in order for the application to proceed (which is why some banks also require a cash bond and an full business plan if a merchant cannot satisfy all that, for whatever reason).

Even if a merchant meets these requirements, they will usually only be able to accept card payments in the “traditional” part of the business only. If a merchant wants to set up a web site to accept card payments they will find that the acquiring banks will not accept any information coming from the merchant directly via the Internet. The banks will only accept information from a web site which has been processed by an approved Payment Service Provider or PSP (who will do this on a bulk basis and in a safe and secure way –and according to PCI or Payment Card Industry compliance rules).

A Payment Service Provider’s function is to integrate a merchant’s e-commerce enabled web site with the major credit card networks so that orders generated by a merchant’s own or chosen 'shopping cart' software can be authorised and payment collected. This payment is then transferred to a merchant’s account for onward remittance to another receiving bank account as necessary.

As you might expect every merchant has to go through quite a formal application process in order to get an agreement in place with a PSP. Their terms and conditions and charges vary enormously from one PSP to another and it is very difficult to make exact comparisons. Merchants also need to be aware that whatever charges any PSP makes will always be added to those charges which are levied by the acquiring bank providing the Merchant Account. This means any merchant may well end up paying two lots of set-up charges, monthly/annual fees, and, worst of all, two lots of percentages (plus fixed fees in some cases) on every transaction.

So, you might be thinking, with all of these hurdles:
1. why would a small organisation in particular bother with all of this? and
2. are there better ways to go about the necessary merchant account sign up steps if the journey to doing so is deemed to be worthwhile?

The answer to the first question is relatively straightforward. For most businesses turning over say more than £100,000 a year, the ability to offer credit and debit cards payments will bring not only extra revenue but will also accelerate cash-flow (to some extent at least). This will usually easily recover the outlay made on setting up a merchant account and make incremental profit into the bargain. Fixed fee payback would be expected to be within the first 6-9 months and thereafter the benefits would typically be significant for most businesses.

The answer to the second question is also a positive one. As the Internet (and web 2.0 technology in particular) has evolved in recent years, there are now several businesses that a merchant can approach to be a “one-stop-shop” when it comes to taking payments (credit, debit and even other types). In other words, these businesses will handle all of your merchant needs, including setting up the necessary relationship with both the bank (the acquirer) and the processor (the PSP) and may offer other services also. At a simple level this is likely to be more flexible customer service (a single point of contact with a real person for example) but may include other services (such as e-wallet capability-such as PayPal offers for instance or electronic billing capability-such as PaySwyft offers for instance). In addition these “one-stop-shop” businesses can often lower overall costs and reduce administrative hassle as well as operate on a “pay-as-you-go” basis. This means that even small merchants can accept credit and debit cards quickly and cost effectively and start to reap the benefits that have mainly only been available to the larger organisations in the past.

Useful additional information on this subject can be found on many websites. One of these is www.web-merchant.com (see www.web-merchant.co.uk/howdoesitwork.asp ) from which some of the above material was drawn.

Why and How a Merchant can Accept Credit and Debit cards

Many businesses wonder why they should choose to accept credit and debit cards. After all, it costs money to get a merchant account and to maintain it. In addition, the merchant always bears the fees that are charged not the consumer, so it’s not necessarily the most attractive option, at least on the surface, unless you happen to be a high volume retail business for example. But that’s not the full story, and in this brief article we’ll explore the major reasons why accepting plastic in a good idea for almost all businesses.

There are four primary reasons to accept credit and debit cards in a business:
1. Increase sales or revenue
2. Bring in new customers
3. Lessen trips to the bank (or having to deal with bounced checks)
4. Lower administrative costs

Let’s look at each of these in turn:

Increase sales or revenue
Many studies over recent years have shown that the average size of credit card orders or payments is anywhere from 20% to 50% larger than cash and check orders or payments. In other words, just by adding this choice to existing customers they increase the amount of money that people are prepared to pay for goods and services. Many merchants, small and large attest to this and reap the benefits accordingly.

Bring in New Customers
Many customers want to pay by credit or debit card but need to be given the opportunity to do so. Studies show that credit and debit card payments (in combination) have already overtaken cash and cheque payments. Customers often get benefits for paying with credit or debit cards such as frequent flier miles or other “affinity” type points. Paying with a credit card also gives customers more flexibility to manage their personal cash flow.

Lessen trips to the bank
By making credit cards an additional method of payment, you decrease the time it takes to process orders by waiting for cheques or other slower payment methods. In addition, you also reduce or even eliminate bounced cheques, and the costs of having to deal with this problem administratively.

Lower administration fees/costs
Because credit and debit cards can be accepted on the Internet or at a terminal (by swiping the card) the transaction is an electronic one and can readily create an on-line record that is easy to record and/or transfer to an accounting or other administrative system without further keying. Administration time (and particularly reconciliation effort) is therefore reduced or simplified or both.

By taking credit and debit card payments, merchants will also typically improve their relationships with customers. In addition, the more difficult it is for customers to make purchases, the more likely your business is to lose customers. Meanwhile, your business will be able to increase retention by offering customers with recurring charges or fees the opportunity to pay automatically.

The Barriers vs. Benefits in Embracing E-Invoicing

At the end of 2010, the research company Paystream in the US conducted a survey on the barriers vs. benefits in embracing e-invoicing. This research was conducted in over 200 companies, mainly medium to large in scale and from a wide range of industries. Results confirmed that 20% of the survey population was already using a form of e-invoicing, with a further 48% actively evaluating adopting it in the near future.

The survey ultimately concludes that the benefits of embracing e-invoicing outweigh the barriers, for most organizations, but suggests that particular barriers will inhibit the time taken to adopt the technology or the time taken for it to become fully utilized. Let’s therefore look at these barriers and benefits in more detail:

Barriers
The survey found the greatest perceived barriers to adopting e-invoicing is current work processes or existing process design around issuing an invoice and getting paid (and the inability to change these processes quickly or effectively). Close behind is the lack of budget to develop or purchase new e-invoicing software, or pay any incremental, up-front costs, even if this led to significant medium to long-term savings. A lack of executive sponsorship is also cited as a commonplace barrier, with the CEO or CFO most commonly expected to be a major driver of adoption in most cases.

Other commonly cited barriers quoted from the survey were often having insufficient resources to bring in a new approach (mainly people) and the associated lack of time and resources to integrate e-invoicing with current systems or software (especially on the accounting side of things). In addition, lack of awareness about available forward options and possible supplier resistance were also cited as being significant factors.

Benefits
The survey found the greatest perceived benefits to adopting e-invoicing is its capacity to better control the whole billing process much more effectively (at every level and from invoice issue to ultimate payment). This includes the capacity to ensure that invoices were less frequently lost, missing or duplicated. The survey also found that e-invoicing was expected to reduce billing and payment processing costs significantly and also decreased cycle times. The capacity to also dramatically reduce errors and exceptions was also cited as a significant benefit.

Another major cited benefit is the capacity for e-invoicing to increase on-time payments (and even accelerate cash-flow) and to increase choice when it comes to invoice payment options and potentially when an invoice can be paid.

What does this mean to those organisations thinking about e-invoicing?
This research clearly suggests that any organisation interested in saving expenses and accelerating cash-flow would be wise to research the e-invoicing options available to them (of which there are several, including cloud-based and “pay-as-you-go” systems such as Payswyft which immediately solve other barriers such as lack of budget and resources and the need for integration time and effort). In addition, the CEO or CFO of an enterprise should ideally act as a project champion, helping his or her organization to evaluate specific options and how particular barriers need to be overcome. In taking these two steps alone, most organizations would smooth the path to embracing e-invoicing and be able to realize the substantial benefits much more quickly.

Why customers love an instant payment option

It may seem almost counter intuitive but while we are trying to win customers and build long-term relationships with them, the vast majority of them (at least at the outset) often want a much more transactional interface with a company from which they are buying a product or a service. In other words, many customers just want to quickly purchase what they are interested in buying and use it. This means that when rendering payment for the product or service, a typical customer wants the process to be relatively straightforward and not consume too much time and energy.

Whether a company is sending out an invoice through the physical mail or by email, their customers are inevitably given more of a challenge than they may want. This is because they are expected to view the paper invoice or look at what is likely to be a static PDF version of the bill and then seek out payment options. Depending upon the organisation, the bill may list one, two or more ways to pay but in all cases the customer has to plan time to respond. For example they may have to write out a cheque, find and address an envelope (unless it is supplied) and find/buy a stamp before posting off the payment. They also might choose to pay at a bank, local store or post office branch which takes payments for a particular bill (and perhaps stand in line or be cross-sold stamps or other products/services when they are paying. Perhaps a little quicker might be the time to call the merchant concerned directly (if they allow this) and make a debit or credit card payment (assuming the call centre is open at a convenient time). In all of these cases, the paying process requires quite a bit of time and effort and this is why so many customers now prefer to pay online if they can.

If a merchant does facilitate online payments, unfortunately not all of the approaches provided are the same. In some cases, an organisation will bury the “ways to pay” module within their own web site. Others will offer a third-party online payment solution provider but the interaction process may be slow and cumbersome. In both of these cases they may require the customer to register before they can pay his or her bill, and this registration process may seek lots of information that the customer may be uncomfortable providing and take quite some time to enter even if they do. The key then is to think about what we said at the outset about offering a quick and easy to follow process and this means offering an instant payment option wherever possible.

Instant payment can take a few different forms but essentially means that customers want to use only a few keystrokes at a given payment web site and not spend more than 4-5 minutes, at most, completing the transaction (which is what most current e-commerce research suggests customer say when they are purchasing at an online site).

A customer therefore needs to be able to enter an invoice and reference number and immediately see their invoice online to review it (ideally in digital form as they would see it in the mail or as a PDF attachment). They then need to be able to select from a range of payment choices (and the more the better) and quickly fill in the data requested of them (credit or debit card number, card expiry date etc). Finally they should be able to review the intended payment transaction data and click “confirm” or “complete” and they are done (and print a receipt if they wish to). You’d think this simple set of requirements to pay instantly would be readily available now in a web 2.0 environment but it is more often the exception rather than the rule.

So what’s the good news in these circumstances? The cloud-based solution PaySwyft.com provides all of the above, and is available to all merchants of all sizes and types without any need for software purchase or integration or monthly/annual fees to pay. Why not give us a call to find out more or to see a demonstration.

Are Direct Debits as cheap as you think they are?

There’s a ‘party line’ about Direct Debit: that it’s a cheap way to guarantee your cashflow month to month. But if you’re a merchant using DD, you might have spotted the downside – in terms of customer satisfaction as well as direct costs.

Just to be clear, a Direct Debit is a regular variable payment that’s controlled by the merchant – as opposed to a Standing Order, where the customer instructs their own bank to debit a regular fixed amount. Customers can cancel Standing Orders with just a few clicks or a nod to a bank clerk...but once they’re on a Direct Debit, they’re effectively surrendering control of their own account.

It might be great for the merchant’s cashflow, but every debit that exceeds expectations is one nail in the coffin for the customer relationship.

And what about payment costs?
Of course, it’s true that Direct Debit is far cheaper than processing manual payments. Merchants benefit from direct invoice to payment reconciliation, and spend less on letters, phone calls and agencies to collect all those late payments. There’s also the major benefit of higher customer retention. So with an average cost of 20p per debit, it looks like the ideal solution for merchants.

But there’s a hidden cost
Not every Direct Debit leads to payment. Currently in the UK, reversals – unpaid debits – run at about 4%, giving merchants a serious headache.

Look at the impact on costs:

A merchant pays up to £30 to set up a new DD to replace the payment that’s failed. With 4 reversals in every 100 transactions, that’s an extra £120 added to payment costs, or an average of £1.20 per customer.

Add that to the 20p that you already pay for each debit, and the real cost of DD can be around £1.40. Much more than you might have expected.

There are other complications, too. A customer’s account could be closed or frozen due to fraud or other legal proceedings. If a customer changes banks, the merchant has to spend time and money setting up a new DD. And the merchant has to keep a record of every DD mandate for a period of 7 years. That’s a lot of archiving!

So what’s the alternative?
Dynamic Debit – a new electronic payment option, like the service offered at Payswyft.com. Dynamic Debit is set up by the customer, not the merchant – an immediate plus if you’re concerned with customer satisfaction. The payment is linked to a customer’s debit (or sometimes credit) card, and allows secure, variable and indefinite payments, just like a Direct Debit.

The difference is, the customer gets to stay in control.

They can set a payment limit, say a £50 maximum, and receive email or SMS alerts if the debit exceeds their threshold. Then they can approve the payment with just a few clicks, or query it with the merchant first.

For any business, it’s a strong message – you’re putting the needs of your customers first.

Cost-wise, Dynamic Debit works out at around 35 pence per transaction. And with virtually no risk of cancellation, reversal or chargeback, there’s no need to worry about the hidden extras that come with Direct Debit.

In other words, Dynamic Debit is a win-win for merchants and consumers: all the simplicity and security you get from Direct Debit, without the additional costs or built-in pressure on customer relations.