Make it easier to get paid – Part 1: Automating your payments with software

37% of UK small businesses run into cash-flow difficulties because of late payment issues – and 20% cite a slowdown in their profit growth, according to recent research by the Federation of Small Businesses. If your company is going to stay profitable, it’s vital to speed up payments, and keep your cash flow positive.

In the first of this two-part series on improving bad debts, we’ll look at how financial technology, and the power of automation, make it easier than ever to stay on top of cash collection and keep late payments to a minimum.

The problem of late payment

Cash flow is the lifeblood of your business – if you don’t get paid on time, that blood stops pumping around your business and you’ll soon find yourself on life support.

But cash flow is utterly reliant on the business having a stable pipeline of income. If hurdles are put in the way of efficient payment, that causes a multitude of problems for the financial health of the company.

Common payment challenges include:

• Payment outside your agreed terms – your invoices need to get paid within the timescales outlined in your invoice terms, but often your customer’s accounts payable team will drag their heels, slowing down payment.
• Chasing bad debts – when customers don’t pay on time, you have to spend valuable business time chasing up late payers and becoming a credit controller – when you have pressing and far higher value things to be doing with your time.
• Reconciliation and admin – you also don’t want to get bogged down in bank reconciliation and the administrative side of managing your payments, bank statements and the transactional side of your bookkeeping.

So how do you overcome these payment hurdles and make sure the cash keeps rolling in?

Traditional payment methods don’t cut it in 2017

The way you get paid will vary depending on the industry you trade in, whether you’re a business-to-business (B2B) or business-to-consumer (B2C) enterprise, or where you do business – whether it’s from a retail outlet or through an online eCommerce website.

But as payment technology has evolved, some of the traditional methods of payment are beginning to seem outmoded and inefficient in a 21st century marketplace.

To highlight just a few examples:

• Cash is fast disappearing on the high street and being replaced by contactless debit/credit cards and payment apps such as Apple Pay and Android Pay
• Cheques are slow and outdated, and are likely to disappear from the banking system entirely within the coming years.
• Standing orders are a pain to set up and highly inflexible when it comes to changing payment amounts and the dates when payment should be made.

So, what payment options are open to the modern small business owner? How can you quickly, simply and inexpensively choose a payment approach that works for your customers – and that keeps your cash pipeline flowing without any hassles?

Use payment tech to speed up payment

Using payment gateways, cashless methods and modern Direct Debit solutions help you to scale down the late payment issue and make the whole payment process faster, easier and more connected to your wider business systems.

Retail and B2C businesses:

If you’re a business that deals face-to-face with consumers (retail, hospitality etc) you need the easiest possible way to take payment there and then, in person. Card readers and the associated online apps that power them make this incredibly simple.

Card reader systems like iZettle plug into your iPad or smartphone and lets you take card payments in an instant. And because they’re connected to your accounts system in the cloud, all your transactions are instantly accounted for and can be reconciled with the live bank feed in your Xero online accounting system.

Service and B2B businesses:

If you’re running a service-based business, where you send regular or ad-hoc invoices to customers, there are a range of payment technology options to do this.

PayPal is a popular option for consumers, and gives your customers a way to pay you online with minimal hassle, and a system like Stripe will let you take card payments online in a similarly simple and straightforward way.

GoCardless is the payment solution that changes the game for business users, in our opinion. Based around the existing Direct Debit system, it takes a well-established method of payment and brings it kicking and screaming into the 21st century.

• It’s simple and cost-effective – GoCardless does away with the expense and form-filling of setting up a Direct Debit with a high-street bank.
• It’s an online solution – GoCardless moves the whole set-up and payment process online, making it faster and easier for your business to set up.
• It’s easy for customers – customers fill out a simple online e-mandate, allowing you to take payment direct from their bank account. They can then either pay you immediately by clicking a ‘Pay Now’ button on your Xero invoice, or they can wait for GoCardless to automatically collect the outstanding amount as soon as the invoice due date is reached.
• It keeps customers in the loop – customers are emailed before any payments are taken, and always have the option to cancel a payment before it’s made. And payments are protected through the existing Direct Debit banking protocols.
• It automates the payment process – this is the real killer benefit for most businesses. Once set up, all your invoice payments are collected, reconciled and matched automatically, saving you hours and hours of admin time.

The benefits of automating your payments

So why is automating your cash collection through GoCardless such a game changer?

Our MD, Jonathan Gaunt, explains how moving to GoCardless not only changed how we work as a practice, but also gives every small business a way to get in real control of their late payments and remove the pain of chasing up bad debts.

Let tech do the hard work

Are you struggling with late payments, time-consuming credit control duties and poor cash flow? If you are, now’s the time to start getting proactive about a better approach to payment, cash collection and your underlying financial management.

With so many payment technology options out there, the ideal digital payment set-up for the job is only a few clicks away – whatever sector you’re working in.

So, dive into the world of payment technology, and start looking for ways to streamline and automate those payment methods.

In part two, we’ll be looking at the best ways to manage your aged debts, and how automated credit control apps streamline the whole process of chasing late payment.

Who are FD Works?

As an accountancy firm we take a different approach to finance. Our team of accountants, advisors and Xero experts work with progressive businesses across Bristol, Bath and the wider South West. We help our clients get a handle on their finances and make bold business decisions.