How to Accelerate Your Cash Flow with Integrated Payments

INTRODUCTION

Few things are as critical to a successful business as having a healthy cash flow. Cash is the oxygen that allows your company to function. Very bad things can happen when deprived of cash, just like when you are deprived of oxygen. Ensuring you do everything possible to ensure cash flow is the responsibility of every business owner.

MISALIGNMENT

One reason AE firms often struggle with cash is the misalignment between the timing of their payroll and their revenue. Payroll is the single most significant expense for most firms. Most firms pay their employees every two weeks. These same firms typically invoice their clients once a month. So, while a firm will have to meet payroll 26 times each year, they are invoicing their clients only 12 times. Clearly, it is not hard to see why times of stress can arise with such a significant differential between inflowing revenue and outflowing expenses.

I have helped many of my own clients overcome this hurdle by creating two billing cycles. One in the middle of the month and one at the end. This doesn’t mean you invoice a client twice each month; it means you stagger your invoicing so some clients get their invoices on the 15th and others get theirs on the 30th. If the invoicing terms remain the same (i.e., 30 days), you will immediately start to see a more consistent influx of revenue throughout the month. Many firms see all their clients pay their invoices during the same week. With my method, firms will see two weeks each month when the money arrives/ 

I can’t count the number of times I have seen this implemented, and it instantly solves this critical problem. Firms that used to draw from a line of credit with their bank to meet payroll no longer have this stress and expense. When I bring this notion up to a firm, their first response is OMG, you’re asking me to go through the pain of invoicing twice a month. It’s bad enough having to take 3 days out of our week to prepare invoices. Now you’re asking me to do it for 6 days? Of course, that is not what I would want to see. At worst, it would mean taking 1.5 days out of your week at the end of the month and shifting the other 1.5 days into the middle of the next month. 

TECHNOLOGY IS THE SOLUTION

The truth of the matter is, I’ll work with my client to implement an invoicing process that removes all the pain from this essential function. In many instances, we will see a reduction from 3 days to 3 hours through the use of smart technology with embedded processes that simplify and automate invoicing. When they combine that twice a month, it’s really 90 minutes in the middle of the month to get invoices sent to half their clients and another 90 minutes again at the end of the month. 

My favorite system is BQE CORE, which makes so many “back office” functions effortless for small and mid-sized AE firms. This brilliant system combines time and expense tracking, project budgeting, resource allocation, invoicing, and more into a single, intuitive platform. Most of my clients automate their invoices by selecting the clients to invoice in the middle of the month, allowing BQE CORE to prepare the draft invoices and notify the appropriate manager to review and approve them. Once approved, the system can email the invoice instantly to the client. In other words, a process that used to take days now takes minutes. But that’s really just half the equation.

INTEGRATED PAYMENTS DEFINED

Let’s talk about integrated payments. After all, that is why you are reading this article. If you are unfamiliar with this term, welcome to the 21st century! By now, all of you have received bills from vendors with a clickable link allowing you to pay them online. Well, that’s one example of integrated payments. 

If that doesn’t seem like a big deal, let me describe the old process. First, an invoice is created. As we discussed earlier, that process was painful in itself.  They printed, folded, and placed it in an envelope. Some unlucky person had the distasteful job of licking a stamp, placing it on the envelope, and then licking the envelope flap to seal it. Finally, after that is done, they have to get it into an outgoing mailbox! Whew, I’m tired just from describing this process. Out of sight, out of mind. Most firms would then wait 29 days before looking at their accounts receivable report to realize that 90% of all the invoices that went out were still unpaid. Calls would be made, and the most famous chorus heard around the world would be sung: “The check is in the mail.”

Assuming that wasn’t a lie, a few days later, the check would arrive in the mail, a bookkeeper would record it in your accounting system, put the check in a drawer, and take it, and any other checks that arrived that week to the bank on Friday. At best, 30 days from invoice creation to payment. But another 3-5 days would pass before that payment was recorded by the financial institution and the funds became available to you! Two payroll periods have been processed by this time, and your bank account is stressed and frighteningly low. You hold your breath waiting for funds to be available.

Integrated payments, like the automated invoicing I was describing earlier with BQE CORE, eliminate all the manual effort that was described in the preceding paragraph while simultaneously accelerating the payment process. Remember that client who received the electronic invoice moments after it was automatically created as a draft and finalized by the manager? That same client clicks the payment link and makes the electronic payment based on your preferences. You can allow them to pay with a credit card, but many firms shy away from this since the credit card agency takes a nice percentage. Some firms allow their clients to pay with a credit card, but the system knows if their clients should be charged a processing fee for this convenience (and allowing them to delay having to pay the eventual bill for another month). Many firms will allow the client to pay with ACH or other similar low-cost payment methods. 

One of the features I love in BQE CORE is that it allows your client to schedule their payment so it is paid instantly or on any date up to and including the due date. This means they don’t have to think about looking at the invoice again in 29 days. They reviewed it and scheduled for you to receive the funds. Move on.

WIN-WIN

This feature is a benefit to both your client and you. They have the convenience of paying you on the date they choose and not having to prepare a check and send it via snail mail. You likewise get the benefit of not having to remind them to pay their invoice, wait for a check to arrive in the mail, process it and take it to the bank.

There is no denying that systems like BQE CORE simplify the entire invoicing cycle. It makes your client's lives easier, eliminates a lot of repetitive drudge work that many firms detest, and accelerates your cash flow keeping your firm healthy and happy.