A small business tool for getting paid on time

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Collect more cash in less time.

How much would your business improve if you could get cash faster, without a huge investment of time?

To reach this goal, many companies use technology to automate the invoicing process. By automating, you can generate more invoices faster and maintain accuracy in your accounting records. The sooner your client receives an invoice, the faster they will pay it.

Collecting cash faster is important, for several reasons.


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Understanding cash flow management

According to The Balance, “Cash is the single most important element of survival for a small business. Small businesses often say that an inability to control cash is their single biggest problem.” WalletHub’s 2019 Small Business Owner Survey found that cash flow was the second biggest concern for business owners, ranking just behind acquiring customers.

Your business must generate cash inflows to pay for company operations. Without sufficient cash, you can’t operate. Sure, you can borrow funds in the interim using a line of credit, but that’s only a short-term fix.

Get paid early by automating your invoice processing system.

Consider this example: Julie starts her business, Premium Catering, in January. She contributes $40,000 in cash into the company and generates a profit each month. On April 30, her cash balance is $25,000.

How can that be?

The problem is related to inventory, accounts receivable or both accounts.

Analyzing cash usage

Many companies, including profitable firms, have too much cash tied up in the inventory and accounts receivable balances.

As Premium Catering increases sales, it must invest in food ingredients, packaging and other items to fill future orders. When purchases are made, Julie increases the inventory account balance.

If Julie’s doesn’t require customers to pay when orders are delivered, she will also increase her accounts receivable balance. Unless Julie has a formal process for issuing invoices and collecting payments, her accounts receivable balance may increase at a faster rate than sales.

If the inventory and accounts receivable balances are too large, Premium Catering may have a liquidity issue.

Working with liquidity

Liquidity refers to your firm’s ability to generate enough current assets to pay current liabilities.

Current assets include cash and assets that will be converted into cash within 12 months. Accounts receivable is a current asset account because you expect to collect all customer payments within 12 months.

Inventory is also a current asset account. You expect to sell inventory on hand and convert it into cash within a year.

Current liabilities are bills and other debts that must be paid within 12 months.

Premium Catering’s cash problem was not a shortage of current assets. The cash decrease was caused by not converting current assets into cash fast enough to finance business operations. If you don’t get enough cash in the door, you won’t have positive cash flow.

Here are two strategies to improve business liquidity:

  • Inventory management: Julie needs to analyze her purchases to reduce the dollar amount invested in inventory. With better planning, she may be able to order food ingredients just before they are needed for each catering job.
  • Accounts receivable management: Julie can reduce accounts receivable by asking customers to make a deposit when orders are placed. Premium Catering also needs a formal policy for emailing and calling customers with outstanding invoices.

When these changes are put in place, Julie’s cash balance will increase as she generates profits each month. As the cash balance increases, Julie can finance her business growth without the need to borrow funds.

Automating the invoicing process will also improve business efficiency.

Making the switch to an automated system

You can complete more work in less time by automating routine tasks in your business.

Webbiquity explains that business automation helps you complete work with more consistency and reduces the risk of error. As your business grows, you can complete more tasks using the same automated process.

The process starts with an analysis of your current processes.

The current system

Premium Catering generates, on average, 60 invoices per month. Most clients choose food items using the company website, and email their orders to the firm. Paul, the administrative assistant, inputs the client data and order details into a Word document that is formatted as an invoice. The invoice is sent when the order is delivered to the customer.

Using technology

Much of the data on the invoices stays the same, and using technology can sharply reduce the processing time.

Julie decides to use the invoicing feature in her accounting system. The invoicing software will fill in the customer’s name, billing address and email address when the client’s name is typed into an invoice template. The template will also pre-load catering items, based on the customer’s last order.

Once the template loads, Paul can verify that the customer information is the same, and make adjustments to the items and amounts listed on the invoice.

Premium emails the invoice when the order is delivered, and also provides a hardcopy of the invoice. Clients can pay the emailed invoice online, using a credit card or debit card.

Paul can also create recurring invoices for clients that place the same order on a regular basis, and the software will prompt him to review each invoice on a specific day. If the Seaside Conference Center orders five cheesecakes each Monday, the invoice can be generated each week automatically.

The benefits

Automation reduces the amount of time Premier Catering spends on the invoicing process. Paul will make fewer errors, and recurring invoices can be processed in far less time.

Emailing invoices, and providing an online payment option, encourages customers to pay immediately, which speeds up cash collections.

Best of all, invoice automation makes the buying process easier, and improves the customer’s experience with your company.

Customer experience: Why it matters

Today’s customers demand a better experience when they buy products and services. If you use technology to improve the customer experience, you can retain more customers, find new business and increase profits.

This 2018 study finds that 73% of companies with above average customer experience ratings perform better financially than their competitors. According to Salesforce, “74% of people are likely to switch brands if they find the purchasing process too difficult.”

How important is customer experience? Gartner found that, “When it comes to making a purchase, 64% of people find customer experience more important than price.”

Business trends indicate that your customers are making more purchases electronically and paying online. This 2017 study reports the following: “71 percent of merchants say the proportion of their annual sales generated through online and mobile channels increased over the previous year.”

Meet your customers where they are. Make the buying process easier by using automated invoicing. You can implement an automated system for online purchases, and for products and services that you physically delivered to the client.

The financial payoff for automation can be substantial.

More cash flow, higher profits

Here are several financial metrics that will improve, if you decide to automate your invoicing process:

Accounts receivable turnover ratio

This ratio measures how quickly you collect cash owed for sales made on credit. The ratio is:

(Net credit sales) / (Average accounts receivable)

Credit sales are sales that are not paid immediately in cash, and “net” means that sales returns are subtracted from the total. The average accounts receivable is simply the average balance for a month or year.

If you choose to make sales on credit, your goal is to maximize credit sales and minimize the accounts receivable balance.

Assume, for example, that Premier Catering generates $50,000 in credit sales during July, and that the average accounts receivable is $5,000. The ratio is ($50,000 / $5,000), or 10.

Julie decides to automate the invoicing process, and clients start to pay invoices faster. In August, she produces $50,000 in credit sales, but the average accounts receivable is only $2,500. The new ratio is 20.

A higher ratio increases cash inflows, and makes it easier for you to fund your business operations.

Customer acquisition and retention

Automation will help you reduce the cost to find a new customer and increase client retention. Both of these factors will increase company profit.

Neil Patel defines customer acquisition cost as, “The difference between how much money can be extracted from customers and the costs of extracting it.” If you improve the customer experience and make it easier to buy your products, you can find more customers at a lower cost.

Think about how often you visit a company website, but leave the site because the buying experience takes too long. Forrester’s 2018 study found this stat: “The majority (66%) of adults feel that valuing their time is the most important thing a company can do to provide them with good online customer experience.”

Make your website easy to navigate and automate your invoicing process to make the buying process easier for customers. If you make these changes, you can build monthly recurring revenue (MRR).

Repeat business generates MRR, which is a revenue source that becomes predictable. Say, for example, that your company generates $60,000 in MRR. That’s $60,000 in business that you don’t have to spend time and money to develop each month.

You’ll spend far less time and marketing dollars, which, in turn, increases profits.

Even better, you can use your invoicing process to offer discounts, promotions and reward programs to your best customers. As Pulse explains, these programs keep your customers engaged and help you maintain repeat business.

All of these efforts will increase a customer’s lifetime value, which measures a customer’s value over an unlimited period of time. If you automate and improve the customer experience, how long will a client do business with you?

The financial payoff can be huge.

Action steps

Take action to automate your invoicing process and improve your business results.


Meet with your staff and document your current process for generating invoices.

Automated invoicing

If you’re not using accounting software, you should be. Ask an accountant and your business peers for software recommendations. When you select a software package, verify that the system allows you to generate automated invoices.

Work with an accountant and your software vendor to understand and document the automated invoicing process.

All of your processes should be documented in a procedures manual. The manual documents:

  • How each routine task in your business is completed.
  • Who performs the task.
  • How often the task is performed.

Using a procedures manual clarifies each process and reduces confusion, and you can cross-train your staff by using the manual.

Once you have a plan in place, set aside time to train your staff. Everyone on your team must understand the new process and how the company will benefit.

After implementation

Once the new invoicing system is operational, you need to train and inform your customers. Specifically, you want customers to know that invoices will be sent immediately by email, and that you offer an electronic payment option.

Finally, use the metrics explained above to measure the impact of the change on cash flows and profits.

It’s about the customer

Why should you invest the time and money to make these changes?

You’ll do a better job serving your customers.

Successful companies focus on the customer and how clients interact with the business. If that process is clearly stated and goes smoothly, customers will keep coming back. If not, they will certainly go somewhere else.

Embrace automation, serve your customers and improve your business results.

This article was produced by the QuickBooks Resource Center and syndicated by MediaFeed.org.

Featured Image Credit: Deposit Photos.