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How small businesses need to be using fintech in 2020

By Rachel AstallSep 20204 min read

There are three main existential threats to your business right now. Around the world, all small businesses globally face these same threats:

  1. Not getting the cash you’re owed quick enough (or at all).

  2. Not understanding the financial position of your business.

  3. Holding things together, but at the expense of your wellbeing, time, or personal goals.

And to make things worse, the COVID-19 situation is amplifying them.

The good news is there is a whole fintech (financial technology) market out there that can help you solve these problems simply and effectively. But to root out these problems, you need to analyse your entire order-to-cash process.

What is the order-to-cash process?

The process that starts with you receiving an order from a customer, through to seeing the cash land in your bank account. Key steps in this process are:

  • Pricing

  • Invoicing

  • Payment collection

  • Reconciliation

  • Forecasting

  • Financing

  • Banking

We gathered 8 industry experts

In July we brought together a bunch of GoCardless’ partners - including Xero, GoProposal, Capital on Tap, Tide, the UK’s Small Business Commissioner, and more - on a webinar series, to apply all that expertise to the biggest problems found in the order-to-cash process.

We’re bringing you exclusive insights from those sessions on pricing, invoicing, and payment collection. All to help you get paid on time, understand your financial position, and keep things running smoothly without long days, stress, and sacrificing your personal life.

Up next we’ll cover the remaining steps in the order-to-cash cycle.

Watch the experts speak firsthand

GoCardless, the UK's Small Business Commissioner, GoProposal, and Xero talk about the biggest problems small businesses face with pricing and invoicing, and how to solve them with fintech.

Watch video

Pricing problems

Before your customers submit their order, you frame the success of the rest of the journey through your pricing.

Pricing expert James Ashford, Founder of GoProposal and Director of accountancy firm MAP, says the problematic pricing models he tends to see are cost-plus, competitor-based, or a ‘finger in the air’ approach.

The problems your business suffers from due to poor pricing, however, are often not felt right away. Instead, they fester and come back to bite you when it storms. These “storms” can be the arrival of new competitors in the market, losing a major client, losing staff, or - relevant right now - a major blow to the global economy. James explains:

“Relationship challenges, not sleeping, being stressed and overwhelmed - these are the real problems business owners suffer from. I’ve had very emotional conversations with business owners recently. People in tears, because past mistakes they’ve made with pricing have come to the fore during COVID-19.”

Pricing solutions

In James’ own words, pricing is never solved - only tuned. But to start, you need to look at the value exchange between your business and your customer’s.

When you understand their goals, you can better understand the value your product or service delivers them. And when you’re also clear on your own business goals, and the resource it takes to deliver your product or service, you can bring this together to come to an informed price.

Fintech solutions - such as GoProposal, for accountants - can certainly help ensure pricing is consistent across your business and client base, saving you time and hassle. However, James advocates starting with Post-it notes on a wall, defining what your pricing problems are, and the goal you’re trying to reach.

If not, he says, you’re not going to be able to tell if the solution is a success. You’re more likely to implement the wrong solution for you, waste your time and money, and be more change-averse in future.

One tip Ben Johnson, Director of Financial Partnerships at Xero, gave was to involve a few of your closest customers in the process. Whether you need to charge higher prices to remain profitable and keep serving them, or you want to expand your offering and add more value and thus need to generate more revenue to do so, Ben says they’re likely to be more receptive and helpful than you might think.

Invoicing and payments: Problems and solutions

Once you’ve got your pricing in order, you need a way to request the funds from your customer and get that cash in your bank account. How you approach invoicing and payments can have a significant effect on how soon you get paid, how clear a picture you have of your business’ financial position, and the amount of time you need to spend on admin.

It should be unsurprising that invoicing expert Ben Johnson highlighted paper invoices and desktop accounting software as common causes of problems in small businesses. He spoke to the benefits of the fintech alternative of cloud accounting software:

“Ideally you want to be able to raise an invoice, have up to date records, and give your customers a really smooth way to pay it, and that’s all possible today with online accounting software and online payment systems. We already know that people that use both those things get paid 14 days faster and they have a better view of the financial position of their business.”

The duality of invoicing and payments is clear here - they are intimately connected with one another. Without addressing both, your cash flow suffers, visibility over your financial situation gets foggy, and you’ll stress yourself or your team out with unnecessary financial admin.

Poor payment practice isn’t too hard to identify - look for processes that require significant or frequent manual action from your customer (e.g. monthly manual bank transfers), and systems that are difficult to use or don’t integrate well with your accounting software.

Payment by bank transfer is an extraordinarily common problem in many industries, when we talk about poor payments practice. If you invoice your customer monthly, let’s say, then you are providing them a manual action they need to undertake every month to continue doing business with you. Not only does this take the power of getting paid out of your hands, and rely on your customer being timely to ensure you get paid on time, it’s unlikely to be the way they prefer to pay you anyway.

According to research from YouGov in 2018-19, bank debit - also known as Direct Debit in the UK or BECS Direct Debit in Australia - is a preferred payment method in the UK and Australia, for both businesses and consumers. UK businesses most prefer to pay via it in 75% of use cases, with UK consumers preferring it in all use cases. Australian businesses and consumers each most prefer to pay via it in 50% of use cases.

This makes sense. As a payment method, bank debit ensures both the merchant and the customer don’t need to worry about annoying financial admin when it comes to payment - it’s all handled safely and automatically.

Payments, reconciliation & forecasting don't need to be a hassle for you

QuickBooks joins GoCardless and the UK's Small Business Commissioner to talk about the biggest problems small businesses face with payment collection, reconciliation, and forecasting. And how to solve them with fintech.

Watch video

What you need to do now

  • Map out your pricing and invoicing processes - What are the steps, who is involved, what technology is involved, and where are the problems or bottlenecks you’re already aware of.

  • Look for pricing red flags - Cost-plus pricing and competitor-based pricing aren’t always the wrong the approach, but if you’re using either it can be worth researching other pricing models such as value-based pricing (finger-in-the-air pricing, though, is never a good idea).

  • Look for payment red flags - Anything that requires significant or frequent manual action from your customers to get you paid is a problem, as are any systems you use which are difficult or irritating or don’t speak to your other systems.

  • Implement the fintech that’s right for you

This article was originally published in XU Magazine issue 24.

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GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services. GoCardless SAS (23-25 Avenue Mac-Mahon, Paris, 75017, France), an affiliate of GoCardless Ltd (company registration number 834 422 180, R.C.S. PARIS), is authorised by the ACPR (French Prudential Supervision and Resolution Authority), Bank Code (CIB) 17118, for the provision of payment services.