In quite long thread on the social networking site “linked in” recently, one individual suggested that sending out invoices was a necessary and rather mundane part of doing business and, as long as it was done efficiently, how it was approached (on or off line) made very little difference to the bottom line-perhaps only a few pounds sterling (or any other currency internationally) for a small business. In this article, let’s test that assumption by looking at what time and cost is involved in sending out invoices physically (which for our purposes here includes emailing them as attachments which are then printed) and sending them out electronically with a full digital bill/invoice presentment solution. A full digital invoice solution is one in which a bill is “clickable” and not just a flat email or a PDF attached to an email for instance.
Most businesses bill on a regular basis, such as the end every day, every week or every month. In all cases however the product or service rendered has to be known along with its cost and an invoice generated to the relevant customer. Even if an accounting system can produce this whole list readily (which is not always the case of course) each invoice needs to be printed (or rendered as a PDF if it is to be emailed) and then sent out with either a correctly addressed envelope (and stamp) or by email. These invoices are then received and opened by the respective customers at various stages-some immediately and some not being opened for several days perhaps and then put into the payables processing queue to be paid either on terms or at some point afterwards.
In traditional billing, customers tended to be treated similarly in terms of offering only one, two or three payment options (such as cheque, direct debit or occasionally a credit card) but whichever one they choose, the customer will need to work quite hard to remit the payment (taking both time, effort and money). Cheques for example need to be written, signed and posted (in an envelope with stamp). Credit card payments (if they are accepted) require the customer to call the client and quote the card details to an accounts receivable person who then needs to reconcile or match the payment to the invoice as quickly as possible.
The bottom line is that traditional billing is an old-fashioned and relatively inefficient process and has high costs for both the issuing organisation and the receiving customer. The research firm Billentis suggests that the average internal cost of billing is somewhere between £5 and £15 (depending upon size of firm and overall process efficiency). About two thirds of this cost is in relatively hidden business expenses such as the staff required to collect money, handle bill calls/deal with queries and carry out bill reconciliation/matching. Hence, anywhere from 3 to 10 of this cost is potentially completely avoidable.
In sophisticated and well-designed on-line web sites (which are now commonplace in the UK and elsewhere) every organisation can now easily upload all of their invoices (daily, weekly or monthly) to a single destination web site at the same time as they are posting out or emailing their invoices. Hence this adds no time or internal effort and only involves a small cost per bill (usually around 0.40-0.50 pence). This is technically an on cost to a business until a physical invoice is no longer sent. However, even if this is not the case, a digital invoice brings a number of benefits.
Firstly, in a digital billing solution at an aggregation web site all customers typically have the option of being immediately able to see their bill or invoice (in summary or in detail) at the billing site just by entering a unique identifying Merchant number and invoice number. If they wish they can then pay it instantly, or (if they want to have a number of tracking, alert and reporting benefits) they can register and pay it. In addition, customers can pay their bill by all the options that the site offers including all debit and credit cards, and even cash in some cases. There are therefore usually multiple ways to pay offered, which all helps the merchant to get their money by the means by which the customer can best pay.
As yet another benefit of digital billing in a system, the on-line site is almost always available to customers 24 hours a day, 7 days a week and 365 days of the year. This means that payments can be remitted whenever a customer wishes to do so, not just when the organisation is open to accept cheques or field phone calls (perhaps only 9-5pm Monday to Friday).
Even if only 10% of customers pay via this on-line channel, this is 10% of invoices that are paid and easily reconciled (requiring no further work or call handling). However, in practice, customers increasingly like making payments on-line, particularly when the channel is safe and secure. Some organisations have therefore converted many more and, in some instances, all of their customers to this online invoicing and payment method.
In time and cost terms, research suggests that those customers paying a digital bill are quicker to pay (accelerating cash flow), are less likely to call the issuing organisation for any reason and are making a transaction which is readily matched and reconciled (saving expensive accounting or bookkeeping time). All in all this is likely to save an organisation anywhere from 3 to 6 per invoice. Even if you only send out 100 invoices a month this results in savings of 3,600 to 7,200. It’s quite clear then that this is a significant difference and may amount to a very large sum for larger organisations.