Top 5 billing practices for optimal cash flow
This blog was originally published April 24, 2015.
Proper cash flow management is an essential practice for your business to succeed. Mastering operating cash flow could be the difference between a thriving business and one that’s struggling to keep the light on.
The worries of having sufficient cash flow into a business are enough to keep owners and CEOs up at night. According to Invoicera, 68.9% of business owners fear that they will lose their business due to a lack of available cash and 37.5% of CEOs say operating cash flow is the most challenging part of running a business.
Operating cash flow is also especially hard for product-centric businesses—or value-added resellers (VARs)—that buy products through distribution and resell to customers, as they have to buy and store inventory ahead of time in hopes of an uncertain future sale.
Ultimately, nothing is more important to optimize your company’s cash flow than your billing and invoicing process. Billing should be well-defined, reliable, and timely to avoid customer confusion and ensure you’re getting paid for all work performed and products sold.
The most common billing blunders are exacerbated by having manual processes for capturing time and expenses, getting approvals, and calculating invoices. Conversely, having a centralized professional services automation (PSA) solution helps with an automated billing process and overcoming common challenges.
Today, we’ll share the top five billing practices for realizing optimal cash flow:
1. House all billing information in a system that easily audits, tracks, and automates billing
Between different rates, agreements, services, and products, billing in a technology company is complex. A centralized PSA pulls together information from all aspects of your business to generate accurate invoices.
Having accurate invoices are crucial to getting paid for your services, but you also want to make it as easy as possible for your customers to pay you. Online payments are a great way to remove barriers—and excuses—that stop your customers from paying their invoices. An online portal, like the ConnectWise Customer Portal, gives your customers a central location to view and pay invoices, along with ticket tracking and issue status updates.
When you track all your work against agreements, you can see which agreements and customers are profitable and which are costing you. A busy customer might keep your techs working and bring in revenue, but if they take away resources from other issues, they might not be as beneficial to your business as the numbers let on.
Tip: ConnectWise takes the input from Sales, Service, and Project Management and generates invoice demand, so that everything is invoiced accurately. Whether you need to bill by user, product, or service—or a combination of them all—ConnectWise PSA™ (formerly Manage)has you covered.
2. Maximize recurring revenue with automatic payments
The benefit of recurring revenue is the ability to count on a more reliable and predictable revenue source. That is the ideal scenario for recurring revenue. Late or slow paying customers have a way of putting a hitch in that plan. Invoicera shows that 58.2% of businesses identify slow paying customers as the biggest challenge in managing their cash flow.
Getting customers on service agreements with recurring revenue is the best way to stabilize and improve cash flow. Set up automated clearing house (ACH) or credit card payments with your customers. It’s convenient for them, and it will reduce your volume of aged accounts receivable.
Remember, the goal is to get paid as fast as possible. Making it easy and removing as many steps for your customers to pay their invoices helps you reach your cash flow expectations.
Tip: Do not store credit card numbers in ConnectWise or any other business management system or PSA solution. Use a PCI-DSS compliant payment system for these transactions.
3. For big projects, request down payments to reduce risk and improve cash flow
You company’s cash position is an indicator of how well you’re generating cash to pay debts, operating expenses, and other business obligations. A cash flow statement is a way to measure the management of your company’s cash position and ensure cash flow is on solid ground.
When a project requires a lot of work, or you’ll need to spend a lot on products, collect a down payment to help cover the cost and protect against the risk of getting stuck with the full liability.
Tip: ConnectWise enables you to create special invoices for down payments on projects.
4. Ensure accuracy before sending invoices
Mistakes on invoices can damage customer trust, or at the very least, cause customer frustration when they either overpay or receive an additional bill.
Improve accuracy when you leverage automation to reduce the need to re-enter information manually. Seamlessly carry over tracked billable time, notes, products sold, and expenses into invoices for crystal-clear billing, and rely on automation to get invoices out the door on time, every time. Have managers review every invoice before it’s mailed or emailed to a customer.
Tip: In ConnectWise, use automated routing rules in combination with status updates to ensure service managers, project managers, and account managers approve invoices before delivery.
5. Make your invoices clear and easy to understand
Invoices are a key touchpoint with your customers. Build trust and avoid payment delays with detailed, timely invoices that match customer expectations. Your invoice needs to:
- Look professional and visually appealing
- Represent your company and quality of work well
- Be clear and easy to understand
Tip: Send a single, clear invoice by customizing your favorite invoice template in ConnectWise CPQ™ (formerly Sell) with your logo and choose to display specific information about the services delivered.
These five tips can help you establish a smooth, automated billing process to improve cash flow and maximize recurring revenue. It all starts with getting a good billing system in place and putting your best foot forward with customer invoices.