Improve Invoicing and Payment Processes

Financial Management OPEN INSIGHT GUIDE FINANCIAL MANAGEMENT: ONLINE INVOICING Improve Invoicing and Payment Processes An efficient invoicing proces...
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Financial Management

OPEN INSIGHT GUIDE FINANCIAL MANAGEMENT: ONLINE INVOICING

Improve Invoicing and Payment Processes An efficient invoicing process is essential to maintaining a healthy cash flow. Smart invoicing can significantly shorten the time between when you complete a project and when you get paid for it. It can also reduce the time spent sending invoices and handling payments. Using a manual invoicing system can take up a lot of time. Paper invoices are drafted and sent via snail mail, then customers need to write checks and mail them back. Once checks are received, you must manually deposit them and wait for the funds to clear. Manual processes can also leave you open to human error, which can result in mistakes like incorrect invoice numbers or amounts due. Online invoicing and payment acceptance solutions help eliminate this cumbersome and time-consuming series of activities and cut back on opportunities for error. SEND INVOICES BY EMAIL Online invoicing and payment acceptance brings electronic processing to the “business” of invoicing and collections. Sending invoices by an email that offers a click-to-pay button with a choice of electronic payment options, such as credit and debit cards, ACH (Automated Clearing House) and eChecks, makes invoicing quicker for businesses and paying more convenient for customers. Cash flow is further enhanced in those instances when payment goes directly into your bank account. Online invoicing and payment acceptance solutions work like other hosted systems. You and your customers use the internet to access a secure web site that stores your invoicing and payment information. Because the system is online, you can initiate invoicing and view customer

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payment information even if you’re traveling or working remotely. BENEFITS OF ONLINE INVOICING Companies of any size can benefit from online invoicing and payment acceptance solutions. These systems can serve your needs whether your business has a web site or not, whether you send invoices on a recurring or ad hoc basis, and whether individual customers are invoiced frequently or rarely. A good first step in looking into an online invoicing and payment solution is to think about

Learn more about online invoicing and payment solutions at www.openforum.com/acceptpay.

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OPEN INSIGHT GUIDE FINANCIAL MANAGEMENT: ONLINE INVOICING

• Multiple payment options. An online solution should allow you to offer a choice of payment options. In addition to major credit cards, you may want to provide customers the option of paying via an electronic check or a direct-debit transaction. This allows you to offer the convenience of a range of payment alternatives to your customers and helps you to get paid faster.

Choosing an Online Invoicing and Payment Solution

• Integration with existing data and software. No matter what format you currently use to store your customer data — either a spreadsheet or an accounting software system like QuickBooks® — you should be able to upload it easily into your online system. This way you won’t have to manually input customer data, except when adding new customers to the system. Some systems also enable you to download invoice and payment information from an online system back into your application or spreadsheet without too much effort.

Not all online invoicing and payment systems are the same; some offer “invoicing only” and some have invoicing and payment acceptance but offer only limited reporting options. If you decide to investigate moving to an online invoicing and payment solution or you’d like to upgrade your current online system, there are some key features you may want to consider:

• Track invoices and payments easily. Another important feature to look for in an online invoicing and payment acceptance solution is a robust reporting feature to help manage your billing process. You should have the ability to track invoices and payments by individual customer, for instance. It’s also beneficial to be able to create your own reports, so you don’t have to rely solely on ready-made reports.

• Customized email invoices. Even if your business is using a third-party system, you want to ensure that the invoices are recognizable as yours. You should be able to personalize your invoices by adding your corporate logo, adjusting payment terms based on individual customers or even including personal thank-you notes or other updates.

6 TIPS TO IMPROVE YOUR INVOICING PROCESS

• Recurring invoicing. If you have customers with recurring invoices or a dues-based business, you should be able to set up invoices to go out automatically.

Before establishing relationships with new customers, research their credit and payment histories so you can avoid companies with payment issues. Have them complete a credit application and check their references. Conduct a credit check with a credit reporting agency, such as Dun & Bradstreet® or Experian™, before accepting a large order. Consider requiring a deposit from those whose credit reports raise concerns.

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what features might be most beneficial to your specific business needs.

• Scheduled reminders. Your online payment system should let you establish a schedule to automatically send payment reminders via email. Look for a flexible system that allows you to set up rules that send reminders on a more frequent basis to problem accounts.

No matter what your current invoice process is, you can take steps to help improve both timely payments and customer relations. 1. Check references

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OPEN INSIGHT GUIDE FINANCIAL MANAGEMENT: ONLINE INVOICING

2. Adapt to your customers’ preferences Contact new customers to inquire about the information they require on invoices. Time spent on this process can go a long way toward ensuring that your invoices move quickly through a customer’s payment system. Here are some things you’ll probably want to ask your customers concerning what they need on an invoice: • Do they need a purchase order number, or will your company invoice number suffice? • Is an itemized breakdown of work completed required on an invoice, or just a general description? • Should you provide a description of the goods or services delivered? • Do you need to include your Employer Identification Number on the invoice? Also determine how your customers like to receive invoices. Some may prefer faxed invoices; some require mailed copies; and others will only accept invoices delivered via email. Consider setting up a receipt process so you’ll know your invoice was actually received. 3. Invoice immediately Send invoices the day a project is completed or as soon as an item is shipped. By waiting even a few days, you may miss a customer’s payment cycle and significantly extend the time it takes to receive funds. 4. Set clear terms Instead of stamping “Due on receipt,” include a specific due date. Companies that pay in 30 or 45 days will follow their own schedules, but it gives you the chance to put your terms in writing. If you offer trade terms, such as discounts for early payment, use the actual dates involved instead of simply including your generic terms.

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5. Build a document trail Document all communications and telephone conversations about invoices so they are filed for future reference. Keep track of requested changes in writing. This trail will help when going after late payments. Develop a payment tracking system so overdue payments are brought to your attention. Consider using software that tracks payments or ask your bookkeeper, CPA, banker or financial advisor for suggestions on ways to do this yourself. As soon as you send an invoice, put the details into your tracking system. Also record the date you receive payment. 6. Make collection calls Promptly follow up on late payments with a telephone call. Reaching out can often clear up misunderstandings. Adopt a matter-of-fact manner for these calls; assume good intentions on the part of your customers. Before the conversation ends, determine a specific amount due and date of receipt. Have someone other than you or your customer-facing staff make collections calls if you are concerned about damaging customer relations.

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OPEN INSIGHT GUIDE FINANCIAL MANAGEMENT: ONLINE INVOICING

5 STRATEGIES TO KEEP YOUR CUSTOMERS PAYING ON TIME OR EVEN EARLY Here are five ways to help keep your customers paying on time and make your business stronger: 1. Provide payment options To help speed payment, let customers pay by whatever method they prefer. Give them the option of using checks, electronic funds transfer, credit cards or debit cards. When possible, use ACH payments, which transfer funds electronically and can save you the time it takes to deposit checks. In particular, offering the convenience of paying online can make this task easier for customers. 2. Use a written contract A clearly written contract or statement of work — including the product or service to be provided as well as the price and payment terms — can help to avoid misunderstandings. When details are ironed out from the start, payment is likely to be made more quickly and with fewer hitches. 3. Provide updates If you foresee a delay in fulfilling an order or shipment or a change in what will be delivered, alert customers early about the issue and explain your plan to manage the situation. This approach eliminates surprises near the delivery time and provides an opportunity to communicate about changes in scope and pricing that might delay payment later on.

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5. Follow up Once a project is completed or an item is shipped, follow up with a call or email to see if your customers like what they received. This is a good customer service practice because it demonstrates your interest in their satisfaction. It can also help to identify any issues that might delay payment. n

4. Offer quick payment incentives Giving a small discount to customers who pay within a specified period of time — for example, 2% for payment within 10 days — can significantly shorten your payment cycle. Also establish a late payment fee or interest for invoices that are not paid on time. Post your terms on your web site and include them on every invoice.

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OPEN INSIGHT GUIDE FINANCIAL MANAGEMENT: ONLINE INVOICING

AcceptPay Helps Businesses Invoice and Get Paid Faster AcceptPaySM from American Express OPEN is a new online invoicing and payment acceptance solution that seamlessly integrates these processes — all in one place. AcceptPay can help you get paid faster with: Electronic invoices. No more waiting for paper invoices to go through the mail to your customer or waiting for them to mail payments back to you. Instead, simply email an invoice that features a link for your customers to click on and pay electronically. Direct payments. When customers pay online through AcceptPay, the funds go directly into your bank account.

AcceptPay also offers: Multiple online payment options. Offer your customers a range of online payment options, including all major credit and debit cards,1 ACH and eCheck. Customers can also pay by check or cash, as usual. Automatic recurring invoicing and payments. If you have customers who pay the same amount on a regular basis, such as dues or membership fees, save yourself time and effort by using AcceptPay’s automatic recurring invoicing feature. You also have the option of automatically debiting customers’ recurring payments from their credit cards or bank accounts. Reporting tools. AcceptPay’s reports help you to stay on top of invoices so you can track payments and outstanding invoices by customer, view ready-made reports or design your own and export reports into an Excel spreadsheet. Easy setup. AcceptPay is a web-based solution, so there’s no software to download or programs to install. And you do not need to build or have a web site to use AcceptPay — customers click on the payment button in your emailed invoice to pay you.

AcceptPay is available for a subscription fee of only $20 a month, or you can get started with our invoicing-only solution for free.2 To learn more about how AcceptPay can help you get paid faster, visit www.acceptpay.com/learnmore or call 1-800-466-0995. 1PaySimple, a registered ISO/MSP in association with First National Bank of Omaha, Omaha, NE, is offering all non-American Express payment services. American Express is not providing or acting as an Agent for the solicitation of any product for or on behalf of First National Bank of Omaha. 2There

are eligibility and registration requirements. A Terms of Service agreement applies and can be found online at http://www.acceptpay.com/terms.html. Transaction and statement fees apply.

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Worksheet

What Are the Costs of Your Current Invoicing and Payment Processing Procedures?

Use this worksheet to see how much you really spend on invoicing and payment processing each year. You may be surprised at the time involved and how much the process actually costs.

Step 1. Determine the Hourly Rate of Personnel Involved in Invoicing Estimate the hourly rate of the person who regularly handles your company’s invoicing and payment processing, be it yourself or a staff member. Base this figure on an annual salary divided by hours worked in a year. For example, say a staff member named “Joe” handles these tasks. All in, Joe costs your company $75,000 per year and he works 40 hours per week for 50 weeks a year, a total of 2,000 hours. This means Joe’s hourly rate is $37.50. Formula: Annual Personnel Cost

÷ Annual Hours

= Hourly Rate

Example: $ 75,000 ÷ 2,000 = $ 37.50

Step 2. Determine Time Spent on Invoicing Estimate the time it takes to prepare and mail invoices each month. This includes: Creating invoices Updating accounting software Stuffing envelopes and mailing Total x 12 = Total

hours per month hours per month hours per month hours per month hours per year

Step 3. Calculate Annual Cost of Personnel Spent on the Invoicing Process Next, take the time spent to create and mail invoices and update your accounting software, and multiply that by the staffer’s hourly rate. In our example, if your staffer spends 40 hours a year on invoicing, the annual personnel cost is $1,500. Formula: Hourly Rate

x Annual Invoicing Hours

= Personnel Cost

Example: $ 37.50 x 40 = $ 1,500 pg. 6

OPEN INSIGHT GUIDE FINANCIAL MANAGEMENT: ONLINE INVOICING

Worksheet

What are the Costs of Your Current Invoicing and Payment Processing Procedures? cont’d.

Step 4. Determine Total Invoicing Supplies and Postage Costs Estimate how much money you spend to print and mail your invoices each year. Include costs attributable to invoicing for paper, custom-printed invoices, envelopes with your return address, self-addressed return envelopes and postage. Printer and toner $ Paper and envelopes $ Other supplies $ Postage $ Total $

per year per year per year per invoice x per year

invoices = $

per year

For example, say you mail 50 invoices each month and you spend $362 annually on paper, toner, supplies, envelopes, etc. Because it costs 44 cents to mail each invoice, you spend $384 to print and mail your invoices each year.

Step 5. Compute the Total Cost of Invoicing Add the personnel time and supplies/postage cost to come up with your total invoicing cost. Formula: Total Personnel Cost

+ Total Supplies/Postage

= Total Cost

The total cost of invoicing in our example is $1,884.

Step 6. Determine Time Spent Processing Payments Determine how many hours are spent processing payments each month and multiply each month the total by 12 to receive the annual amount. Signing and depositing checks Entering figures into your accounting system Tracking unpaid invoices Sending reminder emails/letters Making calls to late accounts Total x 12 = Total

hours per month hours per month hours per month hours per month hours per month hours per month hours per year

We’ll assume for our example that Joe spends 35 hours annually on processing payments. To determine the annual cost of Joe managing the payment process, multiply the total hours spent times Joe’s hourly rate. In this case, the cost is $1,312.50. pg. 7

OPEN INSIGHT GUIDE FINANCIAL MANAGEMENT: ONLINE INVOICING

Worksheet

What are the Costs of Your Current Invoicing and Payment Processing Procedures? cont’d.

Step 7. Calculate Total Amount Spent on Invoicing and Collecting Payments Simply add the total annual cost of invoicing to the total cost of payments. In our example, the total cost of invoicing and managing payments is $3,196.50. Consider Online Business Solutions Shocked by how much time and money it actually takes to invoice and process payments over the course of a year? Many business owners are. You may want to consider moving your customer invoicing and payment processes online to help manage these costs, if you haven’t already. You can decide whether you need an online business solution that offers “invoicing only” features or one that combines invoicing and payment acceptance in one product. Online invoicing and payment acceptance systems can help you better organize and manage the time it takes to handle these vital processes. Learn more about how improving invoicing and payment processes with AcceptPay can help your business — visit www.acceptpay.com/learnmore or call 1-800-466-0995.

To learn more about our products and services, call 1-800-NOW-OPEN or visit us at www.open.com For more OPEN Insight Guides, and other resources to help you grow your business, visit www.openforum.com Copyright© 2005-2010 American Express Company. All Rights Reserved. The information contained in this document is meant for advisory purposes only. American Express accepts no liability for any outcome of its use.

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