In exploring what is involved in developing an overall payments strategy, in this article we will look at the third phase of five in total, which is giving customers as user-friendly a billing and payment experience as possible.
Most dictionaries suggest that user-friendliness involves making a customer process as easy to learn and operate as possible. In practical terms, this often boils down to making sure that language is straightforward and unambiguous. In a web site environment, this will mean making sure that screens are clean and uncluttered, and navigation is both speedy and efficient etc. However, when it comes to a relatively uninteresting task such as receiving and paying bills, it is suggested that the key to user-friendliness is clarity, convenience, choice and control. Let’s therefore look at each of these in a little more detail
Clarity
Many organisations confuse their customers by either failing to let them know clearly how payment can be made for products or services supplied, or bury the information in places where it cannot easily be found (or is difficult to understand when a customer does stumble across it). Customers need simple and clear language about where how they can receive a bill and where, when and how they can pay that bill. In a web site, “ways to pay” is often therefore a simple addition (as a page or a tab) especially when they can click a link and make a payment there and then.
Convenience
In general, convenience is something that increases comfort or saves work. When it comes to billing or payment therefore, the offered approach should allow greater comfort (being able to complete the whole task on line, at home, on a mobile etc) or less work (do it quicker, without having to rely on the physical mail, avoid paper-based copying/storage etc). This might also involve a more convenient web site experience (less clicks, more clickable options or deeper/better analysis when needed).
Choice
All customers like to have choices available (whether or not they use them). In bill presentment and payment, this typically means allowing customers to view their bill in flexible ways. In a web site, this might include the ability to view a mini bill or clickable bill detail. On the payment side, choice involves providing different payment mechanisms. We will look at this issue in more detail in step 4 of this series but in summary this should ideally include as many debit and credit side options as possible so that customers can settle a bill in a way that suits them (which they are more likely to do much more quickly when several choices are made available to them).
Control
According to recent research, customers will pay between 10 and 17 bills a month and may not feel that they are very much in control when these arrive at different times in the mail, are chased frequently and may specify few ways for payment to be made. Using online technology to both issue bills and allowed them to be paid flexibly is one way to overcome many of these frustrations and this has other advantages. In an online bill and payment environment, customers can store their bills electronically (and retrieve them when wanted) can calendarise payment to suit them, get immediate receipt of payment (giving the confidence and security that settlement has occurred) and can analyse bill data whenever and however they like. This all helps the customer feel that they are more in control.
In our next article in this series, we will look at the next phase in developing the Payment Strategy- making as much payment choice available as possible to customers.
Tuesday, 29 March 2011
Wednesday, 23 March 2011
Developing a Payment Strategy-Step 2- Focusing on how to issue bills and invoices in a fast and efficiency way
In exploring what is involved in developing an overall payments strategy, in this article we will look at the second phase of five in total, which is how a business can issue bills and invoices in a the fastest and most efficiency way.
There are few businesses that fail to readily appreciate that when a customer orders a product or service, they expect to have it delivered as efficiently as possible (and this usually means fast). In fact, some organisations even seek to gain competitive advantage by doing this effectively. However, this would be costly unless the invoicing process is equally efficient, so that payment can be collected as quickly as possible. Streamlining the billing process is therefore a critical activity.
There are essentially three options available to streamline the billing process:
First, a business can seek to make an existing manual bill process “flow” more efficiently. For example, this might involve looking at the simplicity of the invoice design or layout, reducing or even eliminating wasteful work tasks, or even further automating the delivery process (such as faster envelope stuffing). Although this may help considerably, the danger is that these process improvements need to be “locked in” to avoid slippage and the changes may only go a short way in terms of overall improvement from a customer perspective.
A second option is to automate the manual billing process as much as possible. For example, this might involve adopting an email-based invoice delivery process (saving on paper, envelopes and franking (if the customer can be convinced to accept an email as the substitute of course). This can save considerably in direct costs and gets the bill to the customer earlier than the physical mail. However, the business is still delivering paper and may not experience much in the way of faster payment. In fact many organisations find that they end up maintaining both their physical mailing and emailing process (and storing more paper than they did before).
A third option is for a business is to let a third-party specialist billing organisation help to streamline the process. One possibility here is to completely outsource the process of both billing and payment collection. However, a more popular option is to either buy full bill automation software from the third-party (and pay for its maintenance and use) or to use a digital billing service. The latter choice is likely to deliver the most change from a customer perspective. Here, a customer’s bill is made available to view at the third party’s dedicated web site, where they can then pay it by a variety of means (on both the credit and debit side).
Each of the above options needs careful consideration, as all three involve time and cost. However, in terms of savings in direct and indirect cost, option three is likely to be the most efficient and cost effective.
In our forthcoming article in this series, we will look at next phase in developing the Payment Strategy- Giving customers as user-friendly billing and payment experience as possible.
There are few businesses that fail to readily appreciate that when a customer orders a product or service, they expect to have it delivered as efficiently as possible (and this usually means fast). In fact, some organisations even seek to gain competitive advantage by doing this effectively. However, this would be costly unless the invoicing process is equally efficient, so that payment can be collected as quickly as possible. Streamlining the billing process is therefore a critical activity.
There are essentially three options available to streamline the billing process:
First, a business can seek to make an existing manual bill process “flow” more efficiently. For example, this might involve looking at the simplicity of the invoice design or layout, reducing or even eliminating wasteful work tasks, or even further automating the delivery process (such as faster envelope stuffing). Although this may help considerably, the danger is that these process improvements need to be “locked in” to avoid slippage and the changes may only go a short way in terms of overall improvement from a customer perspective.
A second option is to automate the manual billing process as much as possible. For example, this might involve adopting an email-based invoice delivery process (saving on paper, envelopes and franking (if the customer can be convinced to accept an email as the substitute of course). This can save considerably in direct costs and gets the bill to the customer earlier than the physical mail. However, the business is still delivering paper and may not experience much in the way of faster payment. In fact many organisations find that they end up maintaining both their physical mailing and emailing process (and storing more paper than they did before).
A third option is for a business is to let a third-party specialist billing organisation help to streamline the process. One possibility here is to completely outsource the process of both billing and payment collection. However, a more popular option is to either buy full bill automation software from the third-party (and pay for its maintenance and use) or to use a digital billing service. The latter choice is likely to deliver the most change from a customer perspective. Here, a customer’s bill is made available to view at the third party’s dedicated web site, where they can then pay it by a variety of means (on both the credit and debit side).
Each of the above options needs careful consideration, as all three involve time and cost. However, in terms of savings in direct and indirect cost, option three is likely to be the most efficient and cost effective.
In our forthcoming article in this series, we will look at next phase in developing the Payment Strategy- Giving customers as user-friendly billing and payment experience as possible.
Thursday, 17 March 2011
Developing a Payment Strategy-Step 1-Appreciating why it is critical to have a payments strategy?
This blog will seek to explore what is involved in developing a payments strategy and in this article we will 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 of 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 we will look at the next phase in developing the Payment Strategy- how to issue bills and invoices in a fast and efficiency way.
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 of 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 we will look at the next phase in developing the Payment Strategy- how to issue bills and invoices in a fast and efficiency way.
Wednesday, 9 March 2011
Developing a Payments Strategy
Over the next 5 weeks, this blog will seek to explore what is involved in developing a payments strategy for any commercial enterprise of pretty much any size. Although the strategy may alter somewhat at the detailed level, I will argue that the approach to be taken is a common one and essentially involves 5 steps. These are:
1. Determining why it is critical to have and maintain a payments strategy
2. Focusing on how to issue bills and invoices in a fast and efficiency way
3. Giving customers as user-friendly billing and payment experience as possible.
4. Making as much payment choice available as possible to customers
5. Building a seamless payments process
Within each of these steps there is a mini-process that it is valuable to follow with the idea that at the end of the five steps, a fully tailored and well-planned payment strategy can be evolved and then implemented.
In some cases, a senior executive in a given organization or a senior manager in finance perhaps will only need to make minor adjustments to current practice, or merely add a few extra steps or approaches to optimize the system already used. However, in other cases the development of a full payments strategy will indicate a much more substantial overhaul and implementation of the billing and payment system and changes will need to be carefully planned. In either of these two extremes, we’ll examine the major considerations and offer some specific advice in terms of options. It should be noted that there is lots of third-party advice available in the market on this subject, much or which is freely provided. As a result, making changes for the better (at least to some degree) is within the scope of any company in this important area of business operations.
In next week’s blog therefore look out for the first in the series-the determination of why it is critical to not only have a payments strategy but to keep it up-to-date and to monitor its success over time.
1. Determining why it is critical to have and maintain a payments strategy
2. Focusing on how to issue bills and invoices in a fast and efficiency way
3. Giving customers as user-friendly billing and payment experience as possible.
4. Making as much payment choice available as possible to customers
5. Building a seamless payments process
Within each of these steps there is a mini-process that it is valuable to follow with the idea that at the end of the five steps, a fully tailored and well-planned payment strategy can be evolved and then implemented.
In some cases, a senior executive in a given organization or a senior manager in finance perhaps will only need to make minor adjustments to current practice, or merely add a few extra steps or approaches to optimize the system already used. However, in other cases the development of a full payments strategy will indicate a much more substantial overhaul and implementation of the billing and payment system and changes will need to be carefully planned. In either of these two extremes, we’ll examine the major considerations and offer some specific advice in terms of options. It should be noted that there is lots of third-party advice available in the market on this subject, much or which is freely provided. As a result, making changes for the better (at least to some degree) is within the scope of any company in this important area of business operations.
In next week’s blog therefore look out for the first in the series-the determination of why it is critical to not only have a payments strategy but to keep it up-to-date and to monitor its success over time.
Tuesday, 22 February 2011
Can taking payments online help to get businesses out of tough times?
For some time now, almost all businesses have had to work a lot harder to keep sales revenues from falling and stop costs rising too quickly (and therefore making profitability very difficult, if not impossible). Although some companies are clearly doing better than others, at the most simple level, they only have two broad “weapons” available to them to do better. One is to sell more and/or at a higher price. The other is to reduce their cost of selling as much as they can without adversely affecting sales or customer service. Let’s look at both of these “weapons” in a little more detail.
Selling more at a higher price
In a high demand market, or where there is product/service scarcity, this is much easier to do. However, in the current economic climate, customers often want to buy or “do” with less and purchase at lower rather than higher costs. As a result, many companies have tried to create discounts for a higher levels of purchases (trading price for volume) or have offered smaller and more flexible purchase “packages” at a higher cost (trading volume for price) but rarely both. Of course, even these individual approaches do not always work and several organisations try many other tactics to win new business or to keep a customer buying (including free product/service giveaways, discounts, costless trial use periods etc). Even more challenging is that every company is now adopting similar steps and the buying customer often benefits by simply watching and waiting for the best deal.
Reduce the cost of selling
At face value, this is a relatively straightforward approach in which we simply stop spending as much as we can or cut budgets/expenses by a fixed amount perhaps. However, all businesses have fixed costs and variable costs. Fixed costs take longer to change (like paying rent in a contract that might run for 2 to 3 years for instance). We therefore often have to wait for the right opportunity to change things in the fixed cost realm. Variable costs can be changed quickly but often mean removing or reducing those very costs which are being invested to generate sales. An obvious example here would be marketing or promotional expenses which are clearly spent to stimulate future purchases. When cutting costs, many companies consequently restrict their efforts to finding “unnecessary expense” or “cost wastage”. This may have worked when there were a few qualifying expenses around to find, but after 2-3 years of economic “squeezing”, there’s often little left to cut.
Technological Innovation comes to the rescue
So, if revenue raising and cost cutting are difficult, what else can companies do? One often overlooked area is to use technology or innovation to render the improvements you are looking for (and this does not have to mean a large-scale investment on the IT side either).
In recent years, technological innovation, as it relates to organisations both small and large, has moved extremely rapidly and has provided whole new ways to do business both more efficiently and effectively. The use of the Internet is an excellent example of this change with even the smallest enterprise now being afforded the opportunity to sell to a worldwide customer base if they so wish via a well-designed web site. And even individual customers are keeping up with the Internet revolution it seems. In 2011 it is estimated that a little under 24 million people in the UK will regularly use the Internet for business transactions. And for a high proportion of these, it is their preferred way of transacting with organisations they buy from.
With the above in mind, there is one area that every enterprise can quickly change to achieve positive benefits on both the revenue raising and cost reduction efforts side of the equation. This is using the Internet to present the organisations’ bills or invoices and to allow them to be paid by customers electronically.
In the past, the change to online billing and payment would have meant quite a large investment in both hardware and software and having to tie up valuable employee resources for months potentially (IT and other). However, if the right solution is selected this no longer needs to be the case. Full service Digital billing providers (such as PaySwyft) have already invested in the technology and are continuing to do so continually. What this means is that this technology is therefore now offered on a “pay-as-you-go” basis to organisations, which can thereby gain the benefits immediately and only pay as a small proportion of transactional income, as the online processes are used. Although this sounds like an on-cost (even if it is “pay-as-you-go”) this is not the case. By getting customers to review invoices online and paying them by electronic means, a company saves lots of individual costs, including issuing invoices (paper, ink, envelopes, stamps etc) and collecting payment (phone call handling, credit control, reminders, statements, reconciliation efforts etc). In addition, because the whole process is much faster for both the merchant and the customer, payments are often made much more quickly, thereby accelerating much needed cash flow. It is not unusual in these circumstances to see savings of 3-5% of costs saved by adopting online bill presentment and payment as well as 0.5-1.5% in revenue side benefits. Clearly this makes a big difference to the bottom line and is well worth investigating as a strategic performance improvement exercise.
Selling more at a higher price
In a high demand market, or where there is product/service scarcity, this is much easier to do. However, in the current economic climate, customers often want to buy or “do” with less and purchase at lower rather than higher costs. As a result, many companies have tried to create discounts for a higher levels of purchases (trading price for volume) or have offered smaller and more flexible purchase “packages” at a higher cost (trading volume for price) but rarely both. Of course, even these individual approaches do not always work and several organisations try many other tactics to win new business or to keep a customer buying (including free product/service giveaways, discounts, costless trial use periods etc). Even more challenging is that every company is now adopting similar steps and the buying customer often benefits by simply watching and waiting for the best deal.
Reduce the cost of selling
At face value, this is a relatively straightforward approach in which we simply stop spending as much as we can or cut budgets/expenses by a fixed amount perhaps. However, all businesses have fixed costs and variable costs. Fixed costs take longer to change (like paying rent in a contract that might run for 2 to 3 years for instance). We therefore often have to wait for the right opportunity to change things in the fixed cost realm. Variable costs can be changed quickly but often mean removing or reducing those very costs which are being invested to generate sales. An obvious example here would be marketing or promotional expenses which are clearly spent to stimulate future purchases. When cutting costs, many companies consequently restrict their efforts to finding “unnecessary expense” or “cost wastage”. This may have worked when there were a few qualifying expenses around to find, but after 2-3 years of economic “squeezing”, there’s often little left to cut.
Technological Innovation comes to the rescue
So, if revenue raising and cost cutting are difficult, what else can companies do? One often overlooked area is to use technology or innovation to render the improvements you are looking for (and this does not have to mean a large-scale investment on the IT side either).
In recent years, technological innovation, as it relates to organisations both small and large, has moved extremely rapidly and has provided whole new ways to do business both more efficiently and effectively. The use of the Internet is an excellent example of this change with even the smallest enterprise now being afforded the opportunity to sell to a worldwide customer base if they so wish via a well-designed web site. And even individual customers are keeping up with the Internet revolution it seems. In 2011 it is estimated that a little under 24 million people in the UK will regularly use the Internet for business transactions. And for a high proportion of these, it is their preferred way of transacting with organisations they buy from.
With the above in mind, there is one area that every enterprise can quickly change to achieve positive benefits on both the revenue raising and cost reduction efforts side of the equation. This is using the Internet to present the organisations’ bills or invoices and to allow them to be paid by customers electronically.
In the past, the change to online billing and payment would have meant quite a large investment in both hardware and software and having to tie up valuable employee resources for months potentially (IT and other). However, if the right solution is selected this no longer needs to be the case. Full service Digital billing providers (such as PaySwyft) have already invested in the technology and are continuing to do so continually. What this means is that this technology is therefore now offered on a “pay-as-you-go” basis to organisations, which can thereby gain the benefits immediately and only pay as a small proportion of transactional income, as the online processes are used. Although this sounds like an on-cost (even if it is “pay-as-you-go”) this is not the case. By getting customers to review invoices online and paying them by electronic means, a company saves lots of individual costs, including issuing invoices (paper, ink, envelopes, stamps etc) and collecting payment (phone call handling, credit control, reminders, statements, reconciliation efforts etc). In addition, because the whole process is much faster for both the merchant and the customer, payments are often made much more quickly, thereby accelerating much needed cash flow. It is not unusual in these circumstances to see savings of 3-5% of costs saved by adopting online bill presentment and payment as well as 0.5-1.5% in revenue side benefits. Clearly this makes a big difference to the bottom line and is well worth investigating as a strategic performance improvement exercise.
Friday, 11 February 2011
Getting paid by the customer-the first not the last consideration
Any entrepreneur looking to start and build a new business would typically have a long list of priorities to consider. This might include what legal structure to adopt, how much operational money to raise (and from where), the specific market upon which to focus, how to advertise the business to customers and how to render efficient and effective service, etc. How to get paid, however, rarely makes it to the list, and even if it does, as a very low priority. Even large-scale and mature businesses commonly fall into this trap, leaving the whole subject of getting paid by the customer as an afterthought at best. So, why is this the case and why does it matter?
First and foremost, whether it is a start-up or mature business, cash-flow is the lifeblood of any organisation. Initial cash-flow may come from shareholders or from borrowings, but pretty quickly, almost all the cash that most companies get comes from its customers. Ideally then, customers who are satisfied with the products or services that are provided are happy to pay the bills that are sent to them. However, they will only remain satisfied if the process for sending them appropriate bills and for settling these bills has been well thought-through.
To illustrate how different this can be from one company to another, let’s look at two example organisations of similar size (each issuing about 3000 bills a month on 30 day payment terms) to see the impact of a well-designed and executed billing and payment system, versus one which is poorly designed and executed.
In company A, management have decided to issue bills/invoices to customers electronically as much as possible. They therefore ask for email address contact details when they acquire new customers and even request a mobile phone number so as to use both email and text messaging when appropriate. Furthermore, they automatically upload their bills into a full digital billing and payment site where bills can be seen and settled 24/7 (such as www.payswyft.com). This allows all bills to be quickly uploaded and viewed almost instantaneously as they are issued. The bill is displayed online in icon format (with full bill detail if required) and can be settled on the same web site immediately. Settlement options include all major credit and debit cards, calendarised dynamic debit payments and even cash settlement choices at the site. In summary the customer gets his or her bill immediately as it is issued (within seconds), can pay it within a few clicks online and gets a record of the transaction stored in the system forever. Because there is really no need to print anything to paper (unless people want to), this is an entirely “green” system for all parties.
In company B, management have decided to stick with a traditional billing system and, as such, send physical bills to customer home addresses. It takes 2-3 days to prepare the “bill-run” typically and takes up to 2 -3 days for the bill to reach the customer (with a second class stamp). Once they have received the bill customers can pay by cheque and direct debit, but only by credit or debit card if they call the company’s call-centre between the hours of 9am and 5.30pm each Monday to Friday. Some bills are lost by customers (and need to be found and resent) and in all cases a follow up chase bill is sent out again after 21 days to encourage settlement within the 30 day terms. Customers call in to get copy bills frequently and also regularly call to ask questions about past bills.
In company A, 90% of customers are not only happy to pay online but 95% of these do so on terms or better. Of the other 10%, cheques and cash payments are rendered, but the system of email and SMS alerts keeps days outstanding to within 3 days late over terms on average. The business therefore needs no special late payment reserve and has no call-centre staff to pay. It also has very few people involved in account reconciliation as most of the electronic payments are automatically matched and reconciled online. Customers are generally happy with the flexibility and choice offered in the payment options, and often comment on it as “a big plus” in the annual customer survey. The bottom line-the cost to issue a single bill and get paid costs about £5 total in company A. This is therefore £15,000 per month or £180,000 a year.
In company B, 30% of customers pay by direct debit on terms. The rest either send cheques or phone in to the call-centre to make a card payment. While 60% of these are paid on terms, 40% are paid late and days outstanding run at 10 days over terms on average. The business therefore runs a reasonably large cash reserve (as an overdraft from the bank), has quite a few staff in customer service (to handle the call volume) and in accounts (to deal with reconciliation issues). Complaints about payment problems are frequent and billing is generally a big minus on the annual customer survey. The bottom line-the cost to issue a single bill and get paid costs about £10 total in company B. This is therefore £30,000 per month or £360,000 a year.
It may seem that these two companies of similar size are deliberately and conveniently described as being poles apart in their approach (with naturally large scale differences in their costs). However, these are real example of two companies that put getting paid first versus last. The key (and hopefully obvious) question is which one would you rather be in your organisation?
First and foremost, whether it is a start-up or mature business, cash-flow is the lifeblood of any organisation. Initial cash-flow may come from shareholders or from borrowings, but pretty quickly, almost all the cash that most companies get comes from its customers. Ideally then, customers who are satisfied with the products or services that are provided are happy to pay the bills that are sent to them. However, they will only remain satisfied if the process for sending them appropriate bills and for settling these bills has been well thought-through.
To illustrate how different this can be from one company to another, let’s look at two example organisations of similar size (each issuing about 3000 bills a month on 30 day payment terms) to see the impact of a well-designed and executed billing and payment system, versus one which is poorly designed and executed.
In company A, management have decided to issue bills/invoices to customers electronically as much as possible. They therefore ask for email address contact details when they acquire new customers and even request a mobile phone number so as to use both email and text messaging when appropriate. Furthermore, they automatically upload their bills into a full digital billing and payment site where bills can be seen and settled 24/7 (such as www.payswyft.com). This allows all bills to be quickly uploaded and viewed almost instantaneously as they are issued. The bill is displayed online in icon format (with full bill detail if required) and can be settled on the same web site immediately. Settlement options include all major credit and debit cards, calendarised dynamic debit payments and even cash settlement choices at the site. In summary the customer gets his or her bill immediately as it is issued (within seconds), can pay it within a few clicks online and gets a record of the transaction stored in the system forever. Because there is really no need to print anything to paper (unless people want to), this is an entirely “green” system for all parties.
In company B, management have decided to stick with a traditional billing system and, as such, send physical bills to customer home addresses. It takes 2-3 days to prepare the “bill-run” typically and takes up to 2 -3 days for the bill to reach the customer (with a second class stamp). Once they have received the bill customers can pay by cheque and direct debit, but only by credit or debit card if they call the company’s call-centre between the hours of 9am and 5.30pm each Monday to Friday. Some bills are lost by customers (and need to be found and resent) and in all cases a follow up chase bill is sent out again after 21 days to encourage settlement within the 30 day terms. Customers call in to get copy bills frequently and also regularly call to ask questions about past bills.
In company A, 90% of customers are not only happy to pay online but 95% of these do so on terms or better. Of the other 10%, cheques and cash payments are rendered, but the system of email and SMS alerts keeps days outstanding to within 3 days late over terms on average. The business therefore needs no special late payment reserve and has no call-centre staff to pay. It also has very few people involved in account reconciliation as most of the electronic payments are automatically matched and reconciled online. Customers are generally happy with the flexibility and choice offered in the payment options, and often comment on it as “a big plus” in the annual customer survey. The bottom line-the cost to issue a single bill and get paid costs about £5 total in company A. This is therefore £15,000 per month or £180,000 a year.
In company B, 30% of customers pay by direct debit on terms. The rest either send cheques or phone in to the call-centre to make a card payment. While 60% of these are paid on terms, 40% are paid late and days outstanding run at 10 days over terms on average. The business therefore runs a reasonably large cash reserve (as an overdraft from the bank), has quite a few staff in customer service (to handle the call volume) and in accounts (to deal with reconciliation issues). Complaints about payment problems are frequent and billing is generally a big minus on the annual customer survey. The bottom line-the cost to issue a single bill and get paid costs about £10 total in company B. This is therefore £30,000 per month or £360,000 a year.
It may seem that these two companies of similar size are deliberately and conveniently described as being poles apart in their approach (with naturally large scale differences in their costs). However, these are real example of two companies that put getting paid first versus last. The key (and hopefully obvious) question is which one would you rather be in your organisation?
Friday, 4 February 2011
Does offering lots of ways to pay bills on-line make a difference?
Despite the rapid rise of the Internet in recent years as a way to both issue a bill/invoice to customers and get it paid on-line, many organisations are not giving their customers much convenience or choice in terms of ways to pay (and not always on-line ones).
In terms of limited convenience, some businesses will send out a bill via email but then expect customers to call in on the phone to make a payment (and then have to staff up to take that call). Even worse, they may encourage customers to send a cheque (and then have to staff up to receive the paper, reconcile it and deposit the cheques at the bank). Having used an on-line channel in the first instance, this simply serves to take customers back to very traditional methods to pay (and also limits the options by which payment of a bill can be made).
And when it comes to choice, consumers like to have many options as possible when paying bills. Hence, writing a cheque might be a valid option but involves writing it out accurately, stamping and then posting it and waiting for the money to be deducted from a bank account. Paying bills at the post office may also be a viable choice but is far less attractive if the customer knows that they may have to queue for quite a while to do it. By making other payment choices available, many customers will therefore elect to pay online by a debit or credit card or by using Internet banking and save themselves time and hassle in doing so.
In terms of available technology, as we are now able to issue a bill electronically (and save the manual time and effort of typing up invoices, stuffing envelopes, stamping them and sending them out) then we should ideally look to give the customer simple ways to stay online to make a payment-this can deliver both greater convenience and choice. So how can this best be done? There are essentially 3 options:
First, an organisation can seek a merchant account with their bank or building society and, once approved, use their facilities to offer several online payment options. Banks/Building societies like merchants to use internet banking, so these days will offer relatively easy ways to make BACS transfers and direct debits for example. They will also issue credit cards for merchants to use and a PDQ machine for some to accept payments (as long as the merchant can staff the machine so that credit and debit cards can be processed). Although this solution undoubtedly diversifies the payments options to customers, none of this is necessarily with some merchant cost of course. Most banks will expect quite a lot of up front security, minimum monthly fees and what might be quite high per-transaction rates unless they get a lot of customer business from a given merchant. They also will not usually offer much more than some very basic payment records.
Secondly, and the first choice of many online websites with a shopping cart for example, is for a merchant to sign up with a Payment Service Provider or PSP. A PSP (such as Worldpay, Global Collect or PayPal for instance) will usually make a wide variety of payment options available via debit or credit and may have the added benefit of allowing customers the opportunity to pay in several different currencies. This can therefore be an attractive option for those merchants who just want to effectively “outsource” the online payment process to a third party. Once again however, although PSPs offer diversified payments options to customers, it can be expensive (with transaction fees of 4% or more in many cases). In addition, a PSP will often also have minimum fees (either monthly or even per transaction) and not offer an on-line billing functionality or capability.
As a third choice, an organisation can work with an online billing and payment aggregation company (such as Payswyft). The main benefit of this option is that the customers of an individual merchant can see an electronic or digital version of the bill at a single web site and then click on the bill to then select from a range of ways to pay or settle it. On a well-designed site these ways will include not only debit side and credit card options but also the ability to pay by dynamic debit and even cash. Furthermore, because the whole site is dedicated to bill presentment and payment, there will be a number of additional services that are useful to the merchant. This is likely to include customisable alerts and reminders (for both merchants and customers), searchable and date-range-able analytics and reports on all transactions and effective bill-matching capability. In this option there are no minimum fees and merchants will make for each transaction according to what the customer chooses to do.
Whatever a merchant elects to do, convenience and choice will greatly improve the customer experience when paying an pnline bill and is likely to decrease internal costs of handling by more traditional payment methods, as well as accelerate cash flow. However, merchants should be careful about how they go about increasing convenience and payment choice as there can be significant up-front costs to be considered-which with care and the right options, can be kept to an absolute minimum.
In terms of limited convenience, some businesses will send out a bill via email but then expect customers to call in on the phone to make a payment (and then have to staff up to take that call). Even worse, they may encourage customers to send a cheque (and then have to staff up to receive the paper, reconcile it and deposit the cheques at the bank). Having used an on-line channel in the first instance, this simply serves to take customers back to very traditional methods to pay (and also limits the options by which payment of a bill can be made).
And when it comes to choice, consumers like to have many options as possible when paying bills. Hence, writing a cheque might be a valid option but involves writing it out accurately, stamping and then posting it and waiting for the money to be deducted from a bank account. Paying bills at the post office may also be a viable choice but is far less attractive if the customer knows that they may have to queue for quite a while to do it. By making other payment choices available, many customers will therefore elect to pay online by a debit or credit card or by using Internet banking and save themselves time and hassle in doing so.
In terms of available technology, as we are now able to issue a bill electronically (and save the manual time and effort of typing up invoices, stuffing envelopes, stamping them and sending them out) then we should ideally look to give the customer simple ways to stay online to make a payment-this can deliver both greater convenience and choice. So how can this best be done? There are essentially 3 options:
First, an organisation can seek a merchant account with their bank or building society and, once approved, use their facilities to offer several online payment options. Banks/Building societies like merchants to use internet banking, so these days will offer relatively easy ways to make BACS transfers and direct debits for example. They will also issue credit cards for merchants to use and a PDQ machine for some to accept payments (as long as the merchant can staff the machine so that credit and debit cards can be processed). Although this solution undoubtedly diversifies the payments options to customers, none of this is necessarily with some merchant cost of course. Most banks will expect quite a lot of up front security, minimum monthly fees and what might be quite high per-transaction rates unless they get a lot of customer business from a given merchant. They also will not usually offer much more than some very basic payment records.
Secondly, and the first choice of many online websites with a shopping cart for example, is for a merchant to sign up with a Payment Service Provider or PSP. A PSP (such as Worldpay, Global Collect or PayPal for instance) will usually make a wide variety of payment options available via debit or credit and may have the added benefit of allowing customers the opportunity to pay in several different currencies. This can therefore be an attractive option for those merchants who just want to effectively “outsource” the online payment process to a third party. Once again however, although PSPs offer diversified payments options to customers, it can be expensive (with transaction fees of 4% or more in many cases). In addition, a PSP will often also have minimum fees (either monthly or even per transaction) and not offer an on-line billing functionality or capability.
As a third choice, an organisation can work with an online billing and payment aggregation company (such as Payswyft). The main benefit of this option is that the customers of an individual merchant can see an electronic or digital version of the bill at a single web site and then click on the bill to then select from a range of ways to pay or settle it. On a well-designed site these ways will include not only debit side and credit card options but also the ability to pay by dynamic debit and even cash. Furthermore, because the whole site is dedicated to bill presentment and payment, there will be a number of additional services that are useful to the merchant. This is likely to include customisable alerts and reminders (for both merchants and customers), searchable and date-range-able analytics and reports on all transactions and effective bill-matching capability. In this option there are no minimum fees and merchants will make for each transaction according to what the customer chooses to do.
Whatever a merchant elects to do, convenience and choice will greatly improve the customer experience when paying an pnline bill and is likely to decrease internal costs of handling by more traditional payment methods, as well as accelerate cash flow. However, merchants should be careful about how they go about increasing convenience and payment choice as there can be significant up-front costs to be considered-which with care and the right options, can be kept to an absolute minimum.
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