How do you get paid?
I ask this of every business during initial review of their operational technology. It does not matter if they hired me because they think they need social media tools, a CRM or new manufacturing software, I always start at the beginning: How do you get paid?
And then I clarify: not what product or service do you trade for payment, but upon successful delivery of that product or service, what are all the steps in the process for you to ask for payment and actually get the cash?
The conversation usually goes like this:
RISK! RISK! RISK! There are too many variables and too much room for human error. If this fails, you don’t get paid. I don’t have to tell you that cash is the lifeblood of growth.
It becomes even more complicated when part of your offering is a raw material or a subcontracted service that you mark up or integrate into your final product. In these cases, you need to ensure the delivery of another product or service is suitable enough for you to invoice AND you need to make sure you have the cash on hand to cover the costs of that raw material – even if you can’t get paid by your client ahead of time. This is why most construction industry contractors go belly up.
Luckily there is a better way to do it.
The key to efficiency is twofold:
1. Improve the Process
2. Manage Your Information Well
Let’s take a look at the process and data surrounding my conversation with client A.
The process usually looks like this:
Pretty ugly huh? Clearly there are some steps we can eliminate, especially those that require many records and many entries of information.
The data points in this process are:
We need all these to get paid so we can’t reduce any of them. We can, however, enter the information only once and not duplicate the data.
This is where technology can help us!
Here are three financial (revenue and billing) systems that help automate the process, reduce the amount of steps required and maintain one set of data throughout the time it takes to be paid.
Quickbooks is an extremely powerful, fully featured financial platform that is a good solution for complicated or high volume businesses – like an e-commerce business OR a service based business with multiple projects that have separate expense accounting needed for each. You’ll need a decent level of accounting knowledge and software support to get it set up to work well. I suggest a budget of $2000 after the licensing for configuration. If you don’t need that kind of power or have that kind of budget, it can be simpler and less expensive.
Freshbooks is my personal favorite for almost any small business, especially those that handle time or material billing of any kind. You set it up to account in great detail but significant configuration is not needed for it to work well. Many of my less tech savvy clients love this for its simplicity. It automates most of the process and keeps everyone up to date with emails. You can use this to store client contact information, create estimates that directly convert to one time or recurring invoices. You, your employees and your subcontractors can record billable and unbillable time and expenses into it. It has native credit card processing integration so you can be paid instantly. I have a high ticket client that has an average aging of 12 minutes to pay. Yep, 12 minutes. The system costs about $30 a month.
Harvest is a competitor to Freshbooks that has almost exactly the same functionality and price point, just different integrations and a user interface that has more of a mac look and feel. I have found this is preferred by graphic designers and similar creative types. Both offer some free trial features so try them out and see which you like better.
By using one of these pieces of technology, you can reduce the number of process steps and use one copy of the data. The risk for error is reduced and the variable time to get paid is compressed because automation helps things go faster. You will quickly see a boost in your bank account and a reduction in stress when you wake up in the morning and find your invoicing went out and your payments got collected while you were sleeping.