But that’s only dealing with the symptom, not the cause.
The most effective way to ensure on-time payment is to address how you get paid. Payments are the fuel of every business, and with the right payment methods in place, you eliminate the need for bandage solutions like chasing up your clients.
However, there are multiple options for you to choose from, so let’s explore together what you need to look out for when in the market for improving your payment collection process this year.
1) Balance your needs AND your customers’
It can be tempting to opt for whichever online payments solution appears the simplest and cheapest for your business. However, this can be a false economy. There are two parties involved in any payment – your business and your customer – and it’s vital to balance the needs of both.
Opting for a payment solution that is cheaper for your business because it passes the cost onto your customer can seem appealing, but may be self-defeating. Whether this be a monetary cost in the form of additional fees, or a time cost where your customer has to deal with a lengthier or more complex payment process (think about bank transfer versus bank debit, for instance), passing this on risks your customer seeking a competitor that offers a superior payment solution for them.
In short, fight against that little feeling inside that latches onto cheap cost and nothing else. Put yourself in your customers’ shoes and choose a solution that addresses their needs as well.
2) Get actionable and timely payment info
The reality of your business’ financial situation is often different to what you think it is. That is, if you don’t receive up-to-date information about the status of payments owed to you.
For recurring payments in particular, knowing whether a payment has been cancelled, or the reasons why a payment failed, is critical.
Some of the myriad reasons a payment can fail include:
• Invalid or expired payment details (e.g. expired credit card)
• Insufficient funds in the customer’s account
• System error within the payment network
And when a customer misses a payment deadline, that can mean a long, painful debt chasing process for your business. But being armed with timely information about why the payment failed or was cancelled enables you to tailor your communications to your customer when following up. Not only helping you collect payment more quickly, but also helping you address and prevent future occurrences of payment failure.
Being able to mitigate the risk of payment failure is key to optimising your business’ revenue stream and improving your payment collection process in 2020. The ideal payment methods to support this are those with low payment failure likelihood and that notify you automatically if a payment fails.
3) Decide on generalist or specialist payment providers
You can find payment service providers that specialise in one particular payment method - such as GoCardless with bank debit - as well as those that have a more generalist offering spread across many methods.
As such, businesses may choose to handle all their payments through one generalist provider, or engage the services of various specialist providers, to offer the same payment methods to their customers.
Specialist providers tend to:
• Offer the best-in-class solution for their area of speciality
• Provide better service and support for their area of speciality
• Charge lower fees for their particular service
Generalist providers tend to:
• Offer a broader spectrum solution for businesses
• Simplify the onboarding and management experience for businesses (however this can make it harder to move away when your needs change)
You should consider the above benefits and shop around the market - looking at costs, terms and conditions, flexibility, option of interchangeability, and of course reviews and references for each provider.
Your business’ payment needs are not necessarily simple or fixed - there can be a lot (or a little) that goes into setting up and operating your payment process, and what your business needs today may not be what it needs in 6 months, 12 months, 24 months, or beyond.
4) Integrate with your billing software
Increasingly, businesses are using cloud accounting software to manage their accounts and day-to-day financial admin but many payment providers don’t integrate with them.
If your payment service provider can integrate their solution directly into your accountancy software, you can save a lot of time and hassle by avoiding needless financial admin. According to Xero, businesses get paid up to 15 days faster with GoCardless for Xero in the UK, 12 days in Australia and 10 days in New Zealand.*
By integrating a payment provider with your existing accounting software:
• Payments connect directly to your accounts – bringing your payment transactions into the secure, access-anywhere cloud and integrating your payment data with your accounting data.
• Transactions are pulled through automatically – If your accounting software has a live bank feed, received payments appear automatically, taking away the frustration of unnecessary admin work.
• Payment and bookkeeping is made seamless – giving you an end-to-end payment and accounting solution that streamlines your finance functions.
According to the Office of National Statistics, cash flow is responsible for up to 90% of business failures – a sobering thought for any business owner. Keeping control of your cash flow is absolutely vital to long-term success.
With a payment provider that integrates with your trusted accounting software, payments can be automatically received and reconciled. You get streamlined cash collection and a real-time view of income and cash flow. This means:
• Your income pipeline is more predictable – with regular invoices paid via bank debit, for example, you get a more regular and predictable overview of your income.
• A real-time view of your cash flow is possible – with all transactions matched and incorporated into your reporting, allowing you to observe your business’ financial health in as near to real-time as possible.
5) Secure your clients’ data
When deciding on a payment service provider, you should audit how the company is dealing with client data. Don’t forget to explore these two areas:
Is the payment service provider authorised to provide the service in the first place?
In the UK, for example, it’s required to be authorised by the Financial Conduct Authority (FCA). This information should be visible on the homepage of every payment provider, and is typically found in the footer.
Is the payment service provider compliant with the relevant data protection regulation?
Review the privacy statement of your payment service provider of choice and make sure they are compliant with data protection regulations. As most payment service providers deal with sensitive customer information, it’s worthwhile to look out for any ISO/IEC certifications they have. This can give you further confidence that they have all the recommended procedure and risk management processes in place to mitigate the risk of data being compromised.
6) Optimise for fast payment processing times
The time it takes from charging your customer to the point where the money hits your bank account makes a fundamental difference to your cash flow.
As a rule of thumb, all BACS (UK), BECS (NZ), ACH Debit (US) and card payments are usually deposited in your bank account within an average of three business days after a customer has been charged.
Whilst cards are usually authorised instantaneously, they typically take longer than a few days to disburse funds even if payments are confirmed. Bank debit payments are pre-authorised due to a mandate that a customer needs to fill in before the first payment is collected.
If a payment provider claims it takes, on average, more than three days for a payment to be settled, you should consider looking elsewhere, as you are likely able to receive more timely payment.
7) Opt for flexibility
Sometimes you’ll need to collect a one-off payment, or want to vary the amounts in a payment plan. Many providers will charge you for these bespoke amounts and payments.
To improve your payment collection process this year, choose a provider that makes it easy to create fixed payment plans as well as set up one-off payments you need to collect from customers.
With GoCardless, it’s easy to amend payments, says Trayde Mackenzie from Diligence Bookkeeping:
“Once clients are signed up to GoCardless for Xero, the payment is made automatically. With another payment provider we could only do fixed amounts each time or we’d have to go into the tool and manually change the figure, which was incredibly time consuming.”
Whatever your preference and circumstances, choosing at least one payment provider which can collect payments automatically for you is going to pay off in the long-run.
Disclaimer: *Average improvement in days to pay on invoices collected by GoCardless for Xero users in the UK, AU and NZ between 01-10-2018 and 30-04-2019. This information is general in nature. Average invoice payment times may vary for each business using the service. Standard merchant fees apply.