Ten ways to accelerate cash flow

In today’s tough economic climate all businesses need to pay even more close attention to ensure that cash due from customers flows in as quickly and smoothly as possible. What follows is ten key ways that cash-flow can be accelerated:

1. Send invoice as soon as possible after a product is supplied or a service is rendered, because every day you are late is at least one more day your customer will wait to pay-terms only start once they receive your bill. If it takes a week to get the bills out, on average, that’s a week’s worth of cash-flow. Also, follow up on major invoices to ensure the client has received the invoice. Invoices can often be delayed by an internal authorisation process, or just going astray.

2. Clear and professional looking invoices get taken more seriously. Make sure that they therefore contain all the information such as the correct entity name, right address etc with clear ways to pay listed.

3. Set fair and appropriate credit terms and communicate these clearly with a ‘due date’ very visible on the invoice. You may even want to set the payment expectations of new customers with a specific welcome letter.

4. Deposit all payments made immediately (especially when these are cheques or cash). The more these can get into a bank account quickly the better.

5. Offer several payment methods not just one or two -customers should never have an excuse for late payment related to your lack of convenient payment options-all customers today (small and large) need to be given choices.

6. Offer early payment discounts so long as it doesn’t swallow up all the profit. If customers are struggling, the sooner you provide the facility to partially pay, the sooner the debt is paid. If a customer exceeds their terms, you can offer cash on delivery terms until the account is back on track.

7. In order to remind customers when to pay, you need a system to let you know when they are due. A series of email/SMS messages, depending upon the time overdue with relevant wording, is often very useful.

8. A great target or key performance indicator for accounts receivables is ‘accounts receivable days’. This is not to be confused with the terms you offer customers. The ‘accounts receivable days’ is the average number of days that all customers are taking to pay you. Of course you want this to be on terms or better.

9. Use you improved cash flow practices to reduce your overdraft or “float” thus saving interest costs or giving you extra cash to spend elsewhere.

10. Aim to do as much of the above as possible online at a flexible and versatile bill presentment and payment web site (such as payswyft.com). Not only will clearly presented electronic bills arrive much quicker but research suggests that customers pay 35% quicker when they receive an online bill and can pay it online on the same web site. Sites like PaySwyft also automatically bundle many of the above steps in the technology or give an organisation a range of options to help accelerate cash-flow.

Ultimately, if you can entrench these steps into your payment strategy and operational practices you will find accounts receivables less of a hassle, resulting in greatly improved cash-flow for your business.

Finding and Using the Right Invoice Template

If you type “free invoice template” into the Google search engine you get about 40 million returned results. Clearly then there is a lot of interest in trying to find and use an effective invoice process (and ideally a cheap or free one) so in this article we will explore what is available and what options appear to deliver the greatest benefits.

Whether you are a one person business or a giant multi-national, getting an invoice to a customer is the beginning a long process in getting paid. Hence, it is important to get this invoice to a customer quickly (once a product has been supplied or service rendered) but it is equally critical that it is clear and encourages the earliest possible payment.

Fifty years ago, hand-written or simply typed invoices sent through the mail were the norm. Today, we have many other options (although these old-fashioned practices have far from disappeared completely). Perhaps the simplest of these is to use an pre-designed template and popular desk top applications like word for windows and an excel spreadsheet package both have several design alternatives to choose from. In both cases these provide a well-designed looking invoices and provide prompt space for particular customer names, address details, product or services provided and the cost involved. They even allow space for logos to be added if desired. 

Outside the standard templates of desktop applications, there are many relatively cheap and even free software packages which allow invoices to be generated. These work in similar ways to desktop templates but may also generate sequential numbers and allow better storage and retrieval (and avoid the mistake prone process of overtyping the last invoice that was typed).

In both of the above alternatives, the problem is that despite the fact that the invoice can be sent by email as an attachment is still only received as a piece of paper (which the customer can do little with when they receive it and may only print in order to later pay in any case).  As a result, perhaps the best alternative of all is to use a bill presentment service which renders the invoice as a full digital bill. This allows individuals to click on an electronic bill at a web site (ideally rendered in graphical form as they would expect to see it as it appears when posted) and either reveal more bill detail, store it, end it on to someone else to review and most importantly to pay it.

For example, at the PaySwyft web site (www.payswyft.com) sole traders, partnership and companies or all sizes can click on the “free invoice template link” on the home page and use the system to generate an invoice at no cost whatsoever. Like the options described above it provides an clear and clean process for entering invoice details but this is rendered as a full digital bill, meaning that it can be clicked on dynamically to see as much detail as has been entered and perhaps more importantly, it can be paid from within the browser, also electronically. The added bonus here is that the single invoice can then be used (when saved) as a template to generate future invoices much more quickly (because a logo has been added and the design of the overall invoice is relatively set).

Sending Bills and collecting payment from customers costs every organisation 5% of Revenue on average!-can this really be correct?

According to several leading research companies who look at international billing and payment issues on an ongoing basis, (including  perhaps the leader in the field of billing research -Billentis) they say, that on average, the overall cost of sending out a bill or invoice and then collecting payment from the customer, is anywhere from £4 to £17 per invoice. Unfortunately, apart from the fact that this is a pretty big range, it tends to create an unnecessary defensiveness in organisations (and often in the finance department in particular) who understandably become very keen to point out that they spend nowhere near that kind of money on such a mundane and clerical activity (although they will often fail to include many of the indirect and hidden costs of the process). Another recently published general statistic, however, could be much more useful and may make a few divisional heads and even CEO’s sit up and think about the efficiency and effectiveness of their billing and payments practices for the first time. This is the statement that on average, an organisation spends 5% of its revenue on issuing its invoices and in collecting payments from customers.  In this article, we will explore this claim and see if it reflects reality for both small and large organisations. To do this we will look at the figures based on two real businesses.

First and foremost let’s deal with the “on average” part of the 5% of revenue claim. What is being done here is to look at many organisations of many sizes and types and simply working out the median or middle value in a range of numbers.  In this case the median cost of billing and collecting payment in proportion to total revenues is 5%. Of course, this means that they are some companies that may be higher or lower than this but statistically, we can say that around two-thirds of all companies would fall into this average of 4%.

The Small Company

The first company (let’s call them Alpha) employs 26 people, has a turnover of £5 million in total revenues per annum. This is earned by selling goods and services at an average of £500 on average each time. Hence their total bills in a year are 12,000 or 1,000 per month. There are two broad cost categories that we now need to look at –staff and transaction costs.

On the staff side, Alpha have one accountant (on a salary of £45,000 per annum, three clerical admin people (at a salary of £21,000 each) and two people answering the phones (at a salary of £17,500 each). Hence, the all up payroll for this group of people is £143,000. The three clerical admin people devote all of their time to billing and payments but the accountant and customer service people devote only 50% of their time to this activity. Hence, we can say the cost of the people’s time which is devoted to billing and payments is £103,000. However, the company has staff overhead costs of 40% (cost of offices, equipment, training etc) which brings this cost up to a total of £144,200.

On the transaction cost side, 40% of the 12,000 bills are paid by cheque, 10% by BACS, 30% by phone (half by debit card and half by credit card), and 20% by cash. For cheques the bank charge fees of £1,200 (£0.25 pence times 4,800 cheques). For BACS, a charge is made of 15 pence per transaction (so £0.15*12000*0.1 or £180). For cash handling the bank charges a flat annual fee of £500 for all cash deposits of this size. For cost of transactions by phone, on the debit side the company pays £0.35 pence per transaction or £630 and on the credit side 2.5% of each transaction value (£500*0.025*1800 transactions or £22,500). Finally, we have to worry about how long it takes to get paid (and the cost of borrowing money to operate and allow for possibly late payments). Given that this small company has average invoice days outstanding of forty, they have to cover this £500 for 40 days or just under 11% of the year. As Alpha is paying interest at 5%, this means the cost to fund the necessary float is £26,027.

There are also a few direct invoicing costs for Alpha to bear including printing invoices, paper, envelopes, stamps and even marketing material (to also design and print). This adds up to a total of £0.90 per invoice (the stamp alone being half of this). We therefore have a total annual cost of £10,800. This makes the grand total on the transactional side of things £61,837. If we total all of the above, we now have a grand total billing and collection cost of £206,037. As a % of the £5 million in revenues this is 4.12% (or what would be £17.17 per invoice). 

The Large Company

The second company (lets call them Beta), employs 525 people, has a turnover of £90 million in total revenues per annum. This is earned by selling goods and services at an average of £58 each time. Hence, their total bills in a year are 1,551,725 or 129,310 per month on average. Once again, there are two broad cost categories that we now need to look at –staff and transaction costs.

On the staff side, Beta have a team of eight accountants (on an average salary of £48,000 per annum each, thirty-two clerical admin people doing bookkeeping, settlement and reconciliation (at a salary of £23,500 each) and a call-centre with sixty people answering the phones (at a salary of £18,500 each on average). Hence, the all up payroll for this group of people is £2,214,000. The Beta company does not keep detailed records but estimates that billing and collecting payments occupies about 60% of the time of this whole team. Hence, the cost of the people’s time, which is devoted to billing and payments is £1,347,600. However, the company has staff overhead costs of 45% (cost of offices, equipment, training etc) which brings this cost up to a total of £ £1,954,020.

On the transaction cost side, 20% of the 1,323,530 bills are paid by cheque, 20% by BACS, 50% by phone (half by debit card and half by credit card), 5% by cash and 5% via Beta’s Internet bank site portal. For cheques the bank charges fees of £52,941 (£0.20 pence times 264,706 cheques). For BACS, a charge is made of 12 pence per transaction (so £0.12*264,706 or £31,765). For cash handling the bank charges a flat annual fee of £15,000 for all cash deposits of this size. For cost of transactions by phone, on the debit side the company pays £0.30 pence per transaction or £99,265 and on the credit side 1.8% of each transaction value (£58*0.018*330,883). transactions or £405,000). Finally, we have to worry about how long it takes to get paid (and the cost of borrowing money to operate and allow for possibly late payments. This company has average invoice days outstanding of 45, they have to cover this £68 for each transaction for 45 days or 12.3% of the year. As the Beta company is paying interest at 5%, this means the cost to fund the necessary float is £553,500.

There are also a few direct invoicing costs for Beta to bear including sending invoices (which Beta does via email not paper unless it is requested by a customer), monthly mailed statements and accompanying marketing material (to also print and design). This is a total of £0.40 per invoice. We therefore have a total annual cost of £620,690. This makes the grand total on the transactional side of things £1,860,054.

If we total all of the above (all staff plus all transaction costs), we now have a grand total billing and collection cost of £ £3,814,074. As a % of the £90 million in revenues this is 4.24%. (or £2.46 per invoice).

Summary

Although the data from these two very different sized companies cannot in any way constitute a statistically significant result, it is nonetheless quite remarkable that both costs of invoicing and collection are so close. At 4.12% and 4.24% respectively they are also only a little less than the 5% average claim made by the research companies. In fact, it is a reasonable assumption that a few more “hidden costs” still need to be added to both sides here (which may completely close the gap). For example, the small company Alpha added no costs for the senior managers (GM and CFO) who both spend some of their time in payment matters, nor for the extra bank charges for bounced cheques, debt collection and writing off-unpaid invoices (issues also not included for Beta also). And, in the large company, there were some system and invoice storage costs that were excluded. This may well have made both % numbers even closer to the 5% figure and possibly slightly higher.

In the final analysis, this is just the data from two individual companies. However, they seem to provide a useful general justification to the claim and serve as a basis for calculating the actual figures for almost any business. This may be especially useful ahead of talking with online digital bill presentment and payment companies that often claim that they can reduce these costs by up to 50%-if this is true, what a great way to lift revenues by up to 2.5%!

Are PDF Invoices better or worse than old-fashioned paper invoices?

A recent study published by AIIM on progress towards the paperless office makes interesting reading as it relates to current billing practices. The study is worth taking note of because apart from AIIM being a credible non-profit research business which has been around for almost 70 years, as the chart below indicates it was a very large survey of companies of almost all sizes. In addition, the study went to companies in multiple sectors all over the world (although around 50% of the companies were in the US).

 

What the Study Showed

As we all know, the capability to exchange PDF files as e-mail attachments is said to have reduced the volume of paperwork traded between companies and small businesses considerably. However, this study says that the reduction is minimal at best, but quite possibly creates more paperwork than it saves.

In specific terms, the study revealed the following facts about PDF as invoices

• Over three-quarters of people surveyed say one of the first things they do with a PDF-based invoice… is print it out.
• From the 77% of the 395 respondents that print out their invoices, 16% scan the invoices right back into the system for use as……PDF attachments.
• 10% of people print out their PDF invoices multiple times.
• 10% of people say they print out at least one copy for archival purposes.

The chart relating to this data is shown below: 
 

What is happening to Invoices?

Although many of the larger companies in the survey seem to be pressing to have all-electronic billing and payment systems, it seems that we are still a long way from this ideal (perhaps as few as 2-3% of companies have a fully digital system which includes no printing and only digital storage systems). However, many businesses are at least trying to save on postage and paper costs by sending invoices as PDF files, or as faxes. However, even here the invoices are often printed out as paper, sometimes at both ends, which almost completes defeats the object. Such practices obviously do not generally result in a reduction of paper within the receiving business in particular. As we saw from the statistics earlier in total, 77% of respondents are likely to print at least one copy of a PDF invoice, and 16% admit to printing it out and then scanning it in for capture, as do 31% receiving a faxed invoice.

Are new more “intelligent” PDF’s the answer?

Most respondents to the AIIM survey were referring to the basic PDF files generated by their Acrobat software, which are obviously less feature-rich than intelligent PDFs have become in recent years with functionality such as XML files being included with all the relevant invoices and embedded payment buttons and even digital signature capture systems. Although this is undoubtedly an improvement, the adoption of these more function-rich PDFs has been very slow and in most cases has had little impact on the rate at which companies of all sizes continue to print out and scan invoices. This is partly because, a PDF is still regarded as paper in real terms-it may be electronic but it is not easy to digitize in ways that are useful for data transfer and exchange. Full digitalization is therefore the goal of many organizations and this is why scanning remains popular. In this regard, when asked what the biggest drivers are for scanning, responses were mainly about data-exchange, availability and flexibility (as the chart below from the survey indicates).

 

So what are the implications?
PDF’s are very convenient as a way to send documents electronically but far less so when it is an invoice. The speed of the sending process is better than physical mailing but so many people are printing it out anyway, it is far short of being the “path to digitization” that companies of all sizes want or need. Fully digital invoices seem to be a much more attractive option and when an invoice can be presented in full in third-party cloud-based portals such as those such at PaySwyft, any company gets all of this immediately.

Can Better Billing Practices Improve Merchant Cash-flow, Cost Effectiveness and Customer Satisfaction?

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.

 

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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).

 

 

 

Cash-still a key method for consumers to pay merchants

In the last 10 years we would be forgiven for thinking that the use of cash to pay for things has been declining so rapidly that it is now a minor payment method (with debit and credit cards being the dominant force in western society these days). However, even in 2011/12, the figures just do not back these up with cash and debit having about 40% of the total pie, with credit cards a long way behind with only 15%.

The UK Payments Council publishes a full report on “the way we pay for things” as consumers in the economy, in April of every year. In summary, their latest research suggests that cash accounts for about two-thirds of all financial transactions in the economy and about one third of the value of the transaction (meaning that cash is typically used for lower value transactions). In fact, there are around 21 billion consumer payments in cash, but close to 80% of these are below £10. Around two-thirds of these cash payments are made in retail environments (such as supermarkets, service stations, shops and pubs etc).

For our regular commitments (bills etc), cash payments account for about 10% of the transactions and around 7% of the value.

Many individuals choose to use cash to shop on-line (often citing security and risk issues with credit and debit cards as the reason). However, many other have no choice but to use cash when they are trying to purchase goods or services (whether these are on or off line). 

Although the numbers vary, the population of people in the UK who do not have a bank account (often called the unbanked) is around 2 million people or about 1.4 million households. This is therefore around 7.5% of the entire UK adult working population and is therefore hard to ignore if you are a merchant or a payment provider.  Of course, this includes many people who are socially disadvantaged or poor in society but even they have to buy products or services or pay their bills. This is not easy to do without a bank account and can only be accommodated if payment providers recognise their need.

Can Merchants really turn off paper bills with digital billing?

Within the billing world, going paperless has been almost like a “Holy Grail” for many merchants, and especially those who are sending out thousands, hundreds of thousands or even millions of bills a month in some cases. And who can blame them? Merchants who send out more than just a few hundred invoices each month are typically spending a great deal of money on printing, putting invoices into envelopes, sending out reminders and/or statements, franking the envelope, having to engage in making sure bills are filed or stored properly and fielding calls from customers who don’t receive a the bill in the mail at all (so it has to be resent) to name but a few things.
 
By adopting a paperless invoice or digital bill only solution, a merchant can technically avoid all of the above and “switch off paper” immediately. However, despite the apparent significant advantages to the merchant, this may not be the best way to go (and it should also not be the driver of the change to digital billing).

Most customers have been getting bills in the mail, or at least ones they can print if they are sent by email, for many years and many want to stick with a process that they well understand. Hence, any merchant that removes the option of receiving a paper bill risks losing a customer’s business altogether. Far better therefore to retain the option to receive a physical bill and either deliver it by cost-effective e-mail or allow a customer to retrieve it and print it for themselves from a central website.

With a cloud-based system such as PaySwyft, not only can any merchant post a digital bill but allow customers to print the bill whenever they like. Even better a merchant can email the bill if they so wish, including follow-up or chase bills. And once customers are using such a fully digital portal they can also use a whole range of convenient technology to manage their bill in more flexible ways. This includes:

 

• Receiving a monthly e-mail notification when a new invoice is available to view.
• Decreasing the possibility of mail fraud and identity theft.
• Automatically calendarising or secheduling payments at a time or date to suit them
• Set email and/or SMS alerts as they like
• Store and retrieve all invoice and payment records whenever they like, forever
• Make payment 24 hours a day, 365 days a year
• Pay in a multitude of ways at the same portal and get a receipt there and then
• See all of their invoices and payments when they want
• Analyse invoice trends and patterns as they wish

This does not mean that they will necessarily “turn off” the paper bill, or stop printing it, but over time the resistance to doing so will clearly lessen. And in the meantime, not only is the customer getting a convenient service for free, that they can use at work or home on their computer (and save themselves time if they were previously paying by cash or cheque in particular), but a merchant is saving money on many fronts, including fielding less phone calls, accelerating cash-flow with earlier online payments and reconciling payments in a much more straightforward way than ever before. Given all of this, getting to a paperless world, if and when it happens, is only a minor bonus.