And online tools that can help!
As we research topics that could be interest to our clients, we do occasionally come across something that really makes us think. Only a few days ago, we came across a post from October 2014 that we could relate to and, we are sure, so can many of our customers.
Time is of the essence
Tempus fugit (time flies), as the famous Latin saying goes and it is certainly true when it comes invoicing for the work completed by business on behalf of other businesses.
Increasingly, small and online businesses are realising the potential of email their invoices to companies, ready for payment. Some larger businesses, perhaps more cumbersome and lumbering in their accounting procedures, may send out paper invoices. Before this paper invoice is generated and mailed to clients, the hoops that have been jumped through and the swings that have been swung in order to generate it will have been fairly gargantuan.
Keeping track of these paper invoices can be an entirely separate task in itself and, in larger organisations, it is. Once one section has produced the invoice, another section within accounting is responsible for chasing and securing payment. For corporations, this is a huge task…
The 30, 60 or 90 day rule that could be preventing businesses from growing
But, it is not just the time spent in chasing payments that is the issue here; for suppliers, there is a far more pressing concern. How many times have you completed work for someone, submitted your invoice only to be told that the company has a 30, 60 or, worse still, a 90 day payment window?
Although irritating, these payment windows and slow payments from companies have never really been challenged… until now and it is the power of cloud based accounting that is really beginning to push the boundaries of what is an acceptable time lapse between submitting an invoice and being paid.
What is an acceptable time frame between invoice and payment? The answer is… there isn’t. In order for commerce to flow, and for small businesses to manage their cash flow (as well as the larger organisations too), the time has come to kick the 30, 60 or 90 payment period in to touch.
Cloud based invoicing, claim some experts, is introducing transparency, ease of administration and speed to both invoicing and payments, excellent news for the small and local businesses out there trying to manage a cash flow.
A cruel reality
Running a business is about taking a degree of acceptable risk; someone likes your products or services. You may charge a small deposit but, in most cases, businesses will complete the work before payment.
The invoice is submitted and then you must wait… and wait… and possibly wait a little longer. In all this time, you are attempting to manage a cash flow that may have dwindled to nothing, or very little. Late payments, the cruel reality in many a case, are responsible for driving many businesses to the wall.
And, if you think it only affects you, think again. One global insurance company estimates that there is around $2 trillion locked into late payments at any one time across the globe.
And the solution is…
As well-being clear about YOUR payment terms – payment due on receipt is a nice way of saying ‘pay now’ – there are other tricks too…
- Discounts – before you all faint at such a ridiculous suggestion, experts suggest turning the ‘fines’ for late payments on its head. Include a payment fee, they suggest, on the invoice amount (adding 20% for example) but, if payment is received within xx number of days (you set the time), this 20% is automatically deducted.
- Get a 3rd party to do it… and chase – some businesses are also realising that investing in their cash flow is important and thus, outsource their invoicing and chasing payments to a third company. For those of us who ‘hate asking for money’, this is a perfect way of completing the transaction.
Cloud computing – does it have the answer?
The crux of the article from 2014 was simple; a clever chap had realised that the issue lay in not only generating invoices, but keeping track of them and speeding up the whole process. At the time, he was working for the Danish Government, who generated thousands of invoices per year as well as paying thousands of invoicing per year to suppliers, large and small.
Developing an online system, he not only made the whole payment system faster and more transparent, but doing business with government departments became a far easier process; local, smaller suppliers felt more confident doing business with departments, and working on larger projects too, for payment was easier and quicker to come by.
Invoicing software – generate invoices and track payments
Running a business is hard enough without worrying about generating the right invoices for the right people for the right amount… and keeping tabs on who has paid and who hasn’t. Larger businesses create their own system and for the smaller business, short on time and skills, there are many online invoicing systems that are just right for your business; some are paid for and some are free.
However, type in accounting or invoicing software and you will have a plethora of apps and programs to choose from. Your invoices and money are important, thus the issue of trust is important when it comes to such things, so exactly how do you make your choice?
Subscriptions and size
Many online invoicing systems offer a subscription service by which you buy ‘enough’ invoicing capacity for your business; this works especially well for businesses who may not generate many invoices within a monthly period, enabling you to keep costs down. The dashboard of the online application should be easy to use, self-explanatory and, if possible, offer you the features that are not superfluous to requirements. In other words, make sure it does everything you want without the fancy (expensive) extras.
For example, if you have recurring payments or send out invoices in batches, does the program offer this ability?
Just like accessing your bank account online, the security for any online invoicing app should be at a high level. Also called ‘bank level security’, there should be three factors that are apparent (but you may need to read the small print to find them!):
- Encryption – data needs to be encrypted to prevent it being useful to hackers
- Bank level security – as we have already mentioned, any online app you use, especially where you are creating links to bank accounts or online payment systems such as PayPal should have the highest level of security
- Redundancy – this refers to the storage of your data by the provider; in most cases, there will be two server sites, one a replica of the other. Should the system be hacked or compromised due to weather and other natural disasters, you should be able to still access your mirrored data from the ‘other’ site.
These invoicing apps can also be used as a billing gateway; in other words, your customer receives the invoice and they pay via online means. Again, such sites need to have all the security and data encryption expected, as you customers will expect this too. Look for online solutions that off you a range of payment gateways that are popular, such as PayPal and Google Checkout. If your online business operates globally, the more options you have for payment the better.
However, there are processing fees – either on a per transaction basis or a monthly one – from some payment providers, which can seriously cut into your profit margins. Check these fees carefully.
Ease of use
A common issue with many services of this ilk is the fact that using them requires a PhD in in Mathematical Computing. If they offer a free trial – as most online software programs do – why not opt for a dummy run, to see how easy it is to use, as well as whether the program suits your business? Many of these software programs offer brilliant features which you don’t realise how useful they are until you have them – for example, tracking sales and payments are two essential components of keeping tabs on the financial health of your business.
You may be expecting your business to grow in the coming months and that is all fine and dandy… until you realise the online program you have been using will not scale up with your business and you are back to square one.
Those that offer a modular approach work really well; buying more chunks as you need them, as well as add-ons are a perfect of scaling up, without having to buy the ultimate package.
Help and support are two key components of online invoicing and financial tracking programs. Many of these apps offer instant chat options, perfect if you have a quick question or query. Email support is also invaluable but, sometimes, there is no compensation for having a telephone chat…