In economics there exists the concept “time value of money”. The time value of money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. For small and medium-sized businesses (SMB) this means that money received from invoices in a timely fashion improves cash flow and provides internal funding for business expenses—payroll, materials, rent—instead of utilizing a line of credit which carries additional cost.
Many SMB’s continue to utilize Purchase Orders and traditional invoicing methods to collect their A/R under the misguided notion that they are saving money by not taking debit and/or credit cards. Owners and managers of SMB’s need to consider:
- How many staff members are being paid to create invoices and Purchase Orders and hunt down late payments?
- 13% of all invoices are paid late.
- 10% of all invoices are written off as bad debt.
The economic impact that is created from inefficient A/R activities well exceeds the fees associated with the implementation of a cost-effective, automated payment processing solution. The most effective payment solutions offer:
- An online payment option—Payments can be taken 24-hours, 7-days per week. How many payments are lost by only having the ability to accept payments over the phone and only during business hours?
- Acceptance of all card brands AND methods of acceptance. There are myriad ways to accept payments—Mobile payments, Apple Pay, Smart Cards, P-card programs, ACH—and utilizing every option available only increases cash flow!
- Recurring payments—set up a payment plan at the same time an invoice is created. This is perhaps the easiest method to ensure timely payment.
- Invoicing via e-mail which includes a “Pay Now” button which redirects customers to a secure payment page.
Implementation of these A/R activities is easy and if negotiated wisely, will greatly improve the bottom line for any organization. Establishing clear, upfront payment expectations is of the utmost importance. Verbiage on invoices, websites and work orders goes hand-in-hand with proper collection of payments. Each page of any work order or original invoice should have a signature line for the customer to sign and agree to the terms and conditions of a good or service as well. Any ambiguity can result in a dreaded “charge back” which requires another process to obtain proper payment.
It is also important to note that costs associated with the implementation of a robust payment processing solution for true business-to-business transactions can be mitigated by employing Level II or Level III billing. These B2B transactions have decreased interchange rates due to the nature of the information collected from the customer. Automating A/R activities makes it easy to identify these transactions and apply the information to receive these savings.
Finally, most business owners and managers don’t wake up each morning to chase after hard-earned dollars. It is estimated that delinquent payments cost SMB’s globally as much as $3 trillion each year! By offering every possible method of payment processing available and establishing the terms of payment at the beginning of a transaction this is hopefully one stress that can be laid to rest!