Getting paid is important.
Hopefully it is stating the obvious, but getting paid is important. Predictable collected revenue is the key to a productive and healthy business. It enables a company to make confident spending decisions whether that be on office space, head count, technology or whatever is important. It’s also crucial in other critical business operations like knowing when to raise money, taxes, etc.
There’s a few things to note about the phrase “predictable collected revenue.” First off, the word “collected” is thrown in there as revenue that was never collected (i.e. an overdue invoice) can be very detrimental. Not only is it not money you can use, but you’ve also likely spent resources on that customer who may never pay. Double whammy.
The second thing to note is that “predictable” does not imply on-time payment. Unfortunately, in the invoicing world, many do not pay on time. The good news is that in many business-to-business companies, invoices are typically paid, though sometimes late. The key here is to be able to predict your revenue well enough to make business decisions. We have some advice on how to get your accounts receivable to a place where that is possible.
3 things you can do to get paid:
1. Send reminders intelligently.
When invoicing, there are four types of customers:
Type 1: Customers who pay on time.
Customers paying on time is something you should encourage and be happy about. Maybe even try getting them to pay earlier if cash flow is critical to your business.
Type 2: Customers who cannot pay.
This issue can be addressed by having a good credit approval process. Invoicing with net terms is effectively extending a line of credit to people. If someone has not paid a previous invoice, you should think long and hard about extending them more credit (i.e. another invoice for more services).
Type 3: Customers who do not want to pay.
The most common reason people don’t want to pay is that from their perspective cash is more valuable in their hands than yours. But, customers not wanting to pay is a bit more complex than first glance. You can further divide this group into two buckets: those who don’t want to pay now but still want to pay on time and those who will push your boundaries, paying as late as they can.
It’s important to discourage the latter by at least threatening penalties. The first group of those who intend to pay on time will more often than not eventually fall into the 4th group below.
Type 4: Customers who forget to pay.
Behind the “customer” is a person who is very likely to forget to pay your invoice if it’s not easy or something they want to do immediately. It is easily the number one reason we’ve seen invoices go overdue in the B2B invoicing world. The key here is to send reminders, and send them intelligently. Customize your reminder schedule based on your customer, their industry and the terms of the invoice.
Here’s our suggestion for a minimal reminder schedule:
- When the invoice is issued.
- About halfway between when the invoice was issued an when it is due.
- The week the invoice is due.
- The day before the invoice is due.
- The day the invoice is due.
- The first day the invoice goes overdue.
- Some regular interval after the invoice goes overdue.
Reminders are critical as you have to remember that in most cases, there is a human on the other side. If their goal is to keep cash as long as possible without penalty, they set the invoice aside and say “I need to remember to pay this in 29 days.”, which really translates to “I hope I remember to pay this in 29 days.”
Have a good system for reminders and understand the different types of customers with whom you need to communicate. This strategy alone can greatly increase your on-time payments.
2. Make it easy to pay.
Another simple way to increase on-time payments is to make it easy to pay. The best way to do this is to offer multiple payment methods where possible so that a customer doesn’t have to figure out how to get a check cut from their AP department, find a corporate credit card, figure out their Paypal account password, etc.
The best way to do this is to have electronic invoicing (a.k.a. a mini website that acts as a digital invoice). Advanced eInvoicing software will also allow you to collect payments right from the web page. If you’re mailing paper invoices, go ahead and also create an eInvoice. Either include a short URL on the invoice or encourage them to log in to your system where you list unpaid invoices. This is all to make it easy for the customer to go online and pay.
Saving payment details (credit cards, bank accounts, etc.) and getting approval to debit accounts can also help you get paid on time. Be sure that your customers agree to being debited and that they always understand exactly when and for what they will be paying.
Make it easy for people to pay by going digital and offering multiple payment methods.
3. Accuracy & Fast Resolution
Be descriptive and accurate on your invoices. Each line item should be clearly understood by your customer (not just your company). If you’re using eInvoicing, you could consider using links out to products or pages that describe the services performed in more detail.
Invoices that are cryptic or unclear often get push-back. And here’s the kicker, sometimes a customer has no idea how to push back. So be sure to include contact information for the person at your company who can help customers resolve any discrepancies. Have a process in place with how to handle any issues with invoices. Know who needs to be involved in the process. And if it’s a complaint resulting from something confusing on the invoice, consider updating your language to make it clearer on future invoices.
Be transparent and accurate on all invoices to reduce any back and forth. But even with perfect descriptions, you will still see some push-back so have a clear process in place to quickly and easily resolve any issues.
Or don’t think about it…
I’d be remiss as the CEO of Paid if I didn’t make a small plug for my company. Paid is the easiest, most scalable Accounts Receivable team you will ever have. All of the complexities I mentioned above (which to be honest is a small slice of the pie) you get out of the box with Paid.
Don’t worry about designing complex billing solutions or intricate invoicing analysis. We have years of experience that will help you get a robust billing experience set up in hours as opposed to weeks, months or years (or never).
Check us out at www.paidlabs.com.
Invoicing is complex
Invoicing is a deceptively complex process for any company, even ours (Yes, we invoice our customers too!). As mentioned, there is complexity in the type of customer you are invoicing, the amount of credit you are willing to extend, the predictability of your revenue and your processes put in place to not only send invoices but to handle getting them paid and resolve any issues.
We always recommend that companies think about how they want to invoice and the effects that process will have on their business. Think about the number of people you’ll need involved (i.e. those to create invoices, send them, send reminders, collect payments, reconcile payments, mark invoices as paid, generate reports, etc.). Think about the analysis you’ll regularly perform to determine your collected revenue and how you can improve the on-time payment rate.
Tweaks can always be made to the process, but it’s much easier (and cost effective) to get it right from the start. That’s why we tell companies to design first and build second.
Whether you are a Paid customer or not, we are happy to answer any questions about the content above or Accounts Receivable in general. Shoot us a message at email@example.com!