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.

Is online Direct Debit a “Win-Win” for Everyone?

Direct Debit or Direct deposit as it is called in some countries has been around for decades now and making steady inroads as a payment method offered these days by many large merchants, often with incentives (such as vouchers or money off a bill) to customers to sign a direct debit mandate. Merchants who are part of the Direct Debit scheme (called Originators) claim that the service not only saves time and hassle for customers in general, but also that it facilitates easier scheduling, easier storage, is more secure, involves less cheques and reduces errors. Of course, both the merchants and the banks also gain these same benefits, not to mention the capacity to reach into a customer’s bank account directly to collect payment for a bill (something that a customer is not always completely happy about).

Despite its steady progress, Direct Debit’s growth has slowed until very recently, when on-line billing and/or payment portals have come into being and offered to speed up quite an old-fashioned process, in which a paper-based form still had to be sent in and signed before service could commence (and the whole process repeated when a direct debit amount changed). These new portals (such as the one at www.Payswyft.com as an example) not only offer traditional benefits to consumers (shown in the table below to the right-the top 4) but adds new customer benefits that are only possible online (shown in the 5 blue italics items in the right column below). The online portal therefore gives consumers even more reason to either use direct debit some of the time or use it as their primary payment channel.

Banks and Originators win too
It’s always critical for a customer to gain substantive advantage with a payment service of any kind but it is even better if the service provider can win at the same time. In the two columns to the left above are therefore the advantages gained by both the banks and the originators/merchants by pushing direct debit as a payment option. For the banks the primary advantage is that online direct debit payments reduce data entry time and staff, but not far behind is the new revenue possibility of opening up new markets (e.g. smaller merchants being introduced to the scheme). For the originators the primary advantage is that it helps to retain customers, who typically like all their payment history to be available at the portal. Just as important though is the cash-flow benefit. Direct debit payers almost always pay on time (and many pay early). No more cheques in the mail on the last possible day.

Summary
Direct debit is not a new service but online billing and/or payment portals such as PaySwyft offer even more reasons for everyone to gain the benefit of using this payment channel.