Thursday, 20 November 2014

I just want to pay the bill…

How can something so inconspicuous, so much a part of our everyday life draw so much interest. From innovators to investors, from governments to regulators, the simple payment has become an industry in itself. Lawmakers, consultants, legal advisors, accounting packages, mobile technology providers, search engines and many other industries dedicate resources, whole departments and divisions to this humble transaction. Not to mention the plethora of businesses dedicated to the payments industry itself.

So why all the fuss? Because not all payments are created equal.

I mean, what on earth is a supplier-initiated virtual card? What relevance does it have to your business. What is EIPP and BIP? should you know these things? Are your competitors cleaning up because they have more acronyms in their tool-box than you?

The sad answer is probably! The challenge is that it seems that for every type of payment, for every specific industry, for different sized businesses, there are different solutions and different providers. They all claim to offer benefits, and I'm sure they all do in their own specific way.

So how does a business navigate through this sea of payments related opportunity? Or should you just keep it simple and take the apparent path of least resistance and stick with your bank? After all, aren’t these snazzy payments solutions just for the big boys with big bucks and all that fancy supply chain software?
4.7 million of the 4.9 million businesses in the UK have less than 10 employees. 526,000 businesses were registered with Companies House in 2013. If you are one of those small businesses, or just starting out on your journey, what should you do? The stats on business failure rates are fuzzy because not all sole traders are VAT registered but it seems that around 30% of businesses fail in the first year, 50% by the end of year 3 and statistics from VAT registered businesses show that a staggering 78.6% of businesses cease trading within 10 years.

In order to avoid being just another one of those statistics, it's important to understand that there are options out there beyond a traditional business bank account to help you better manage your chances of survival. While you are designing your website, organising shipments or hiring staff, you may not be thinking about your payments strategy. But this is where the money is! Focus on following the cash. How much do you owe, how much are you owed. How much 'float' (working capital) do you need to smooth out the peaks and troughs of cash flow. Don’t assume everybody will pay you on time. Assume you will pay everybody on time. Think 'cleared funds'. That money that just arrived (in your account, in the till, cheque in the mail), what charges are there against that cash?

What types of payments will you/do you accept? Cash, on-account payments, credit/debit cards. Are you online, accepting electronic commerce payments? If you are going to be offering credit terms, how will you fund the timing differences between selling the product and collecting the cash. How will you buy more stock to sell if your customer hasn’t paid you for the last lot they bought? These may seem like basic questions but knowing the answers will help you survive. And designing your strategy to manage the ebb and flow of cash flowing through your business is critical to the success of your enterprise.

Look to reduce the number of moving parts – you could end up with a multitude of providers to do all the things you need. More moving parts equals more of your time gluing everything together and reconciling everything to get a status check on your business performance.

Look to automate wherever possible. Automation equals scale, time savings and minimising the chances of manual error.

There are payment providers out there who offer a combined merchant & business account and can also help with foreign exchange & currency accounts.
Benefit: faster time to clear and make available your card sale proceeds, better visibility of incoming and available cash and reduced risk of foreign exchange exposure

There are payment providers out there who offer intelligent links between your accounting software and your payments software (and/or business account).
Benefit: time saved manually processing payments and reconciling bank account(s) to financial accounts

There are payment providers out there who offer additional features such as electronic invoicing
Benefit: Avoid "the cheque's in the mail", get paid faster

Some questions to ask yourself (whether just starting or already up and running):
  • How many outbound payments will you be making each month (to suppliers, agents, staff etc.)
  • How time-critical are each of these payment 'types'? Will you incur penalties for late payment? How will your reputation be affected?
  • Where are these outbound payments going? Locally, Internationally (Europe vs Rest of World)? Are you required to settle invoices in foreign currencies?
  • When do you expect incoming funds? Are all funds received in GBP or will you receive incoming funds in other currencies? Customers pay you using cheques? How long do these take to clear?
  • If you are receiving funds in currencies other than GBP, are you also making payments in the same currencies (i.e. Euros in from overseas customers, Euros out to overseas suppliers or agents).
  • Are you receiving credit/debit card payments? How long does it take for these sale proceeds to clear through your merchant account provider? How long does it take to get funds from your merchant account to your business account?
A bit of extra time spent on your payments strategy early in your business journey will reap benefits further down the track. Benefits of cash flow visibility, scale and ultimately the ability for you to focus on running your business and serving your customers.