Technology lets businesses streamline and make substantial improvements in customer invoicing processes. The faster a business is able to generate an invoice, the sooner the payment. Here are four ways to improve accounts receivable processes that save time and money:
1. Invoice Creation
The best way to create invoices is by the push of a button from systems that already have all of your data. Depending on the type of system, data collection comes from:
- Time and billing, if the business bills with an hourly rate
- Estimating and project management, if proposals drive the amount to pay
- Customer relations management (CRM) systems that have invoicing as a feature
- Point of sales systems that track open accounts
- Accounting system that includes an A/R component
Follow best-practice procedures to keep the invoicing process accurate and as simple:
- Eliminate any duplicate data entry. Make sure that invoice data has only one source, or that information automatically feeds into one source. The data should flow to every other system that needs it.
- Automate as much of the process as possible. Never start in Word or Excel, because this always means duplicate data entry somewhere.
- Have an easy approval process so that different staff members can do the data entry if needed.
- Keep invoice data real-time so that it’s ready for delivery without a lot of updating or waiting on information that is slow to arrive and results in delaying the invoicing process.
2. Invoice Delivery
Invoice creation varies by type of business, but the main thing to make sure of is that the invoice is approved quickly and sent out to the client as soon as the work is complete.
Electronic transmission is the best way to send invoices quickly. Printing, stuffing, stamping, and mailing invoices loses anywhere from two days to nearly a week before the customer even sees the bill. There’s a tangible cost for mailing materials and postage, and another cost in employee time spent to handle the physical bill. Save money by using email or delivering the invoice electronically.
For example, Lucrum has a landscaping client who does monthly maintenance for its customers. Invoices are separated into three categories by customer demand: mailed, emailed, and credit card on file. Obviously the credit card on file batch is preferred but this client has several customers who don’t feel comfortable with that option. So, the emailed invoices are set to automatically generate on the 25th of each month and are emailed to ALL customers in a batch with just a few clicks. What a huge improvement over emailing each client individually!
3. Invoice Terms
Most people feel it’s realistic to aim for 30-day payment terms. But if stated payment terms are Net 30, the business is more likely to receive payment in 45 – 60 days, not 30.
Instead, set terms to 13 days or less, because most small business debtors pay two weeks late. Another option is to offer discounts for early payment or even prompt payment.
4. Payment Method
Having several methods of payment also encourages faster payment of invoices. Check payments delay receipt of payment by up to a week, and there’s employee time for processing upon receipt. Additional payment choices include:
- Credit and debit cards through MasterCard, Visa, American Express, and Discover – Set up links for payment online (best) or receive a fax or scanned form for an employee to process the card. Credit card merchant processing fees vary widely, and some are easier to use and work with than others. Compare several options before signing an agreement.
- PayPal – Many customers like the privacy of a PayPal option.
- ACH for one-time or recurring payments that the client agrees to draft from a bank account – Customer has the ability to schedule a funds-withdrawal date, and the money credits to the A/R account with no administrative time or effort.
- Checks – Some companies prefer to pay by check.
Some industries have more options. For example, in accounting, Intuit has their Intuit Payment Network (IPN) where small businesses can receive money electronically and send and receive requests for money. IPN is far cheaper than PayPal fees, too.
Companies who want to reduce invoicing altogether offer a pay-in-advance option. The Accounts Receivable balance drops significantly. Not every industry can adopt this practice, but finding ways to implement this strategy has bottom line and cash flow benefits. For businesses who can’t determine the exact amount of the final bill, consider asking for an advance payment or a deposit to get started. Any up front payment reduces the total outstanding receivables.
Electronic invoicing, delivery, and payment avoids the delays that wreak havoc on cash flow. And introducing shorter payment terms or pay-in-advance options contribute to a stronger cash position. Even a few small changes can make a difference in time and money.