Scale your payments to scale your business

When it comes down to it, a key part of being in business is about getting paid.

After all, getting paid on time, every time, means more cash on hand to invest in growth.

But it’s certainly not the reason most business owners got into business in the first place. At least, certainly not the raw practicalities. Sharing CSV files with the bank, chasing payments, reconciliations – this kind of admin is not what gets you going.

But it is a reality for a lot of small to medium sized businesses who still manually manage payments themselves. Not only does it take time, it also has an impact on your bottom line too. 

A recent study by the Federation of Small Businesses and GoCardless found that 53% of small businesses surveyed are spending up to an hour a week managing late payments . 63% said that the time and resource costs plus the value of late payments costs them up to £100 per week. 

When you consider the fact that 26% of the time spent on customer billing by finance teams could be automated, it’s clear that there’s a big opportunity for businesses to automate current manual processes. 

This guide is here to help. By demystifying payment collection automation and unpicking the challenges technology can solve, it provides some practical — and long overdue — advice for firms looking to take the pain out of payments.

Four key questions to ask yourself about your payments process

 Every business is different, so the payment pains we’ve been discussing will be felt to varying degrees and at different times.

We recommend asking yourself these four questions to better understand how and where payments are causing you unnecessary pain. This will accelerate your solution search when you’re ready to start addressing your payment processes.

1. How long are you waiting to get paid?

80% of businesses wait up to 20 days past the due date to receive payments due to manual, outdated methods (Forrester).

Money languishing in receivables impacts cash flow and cash flow forecasting. Worse, as Days Sales Outstanding (DSO) creeps up, so too does your exposure to risk and bad debt. Ideally, your payment methods and processes should be automated to eliminate any frictions that delay the collection and clearing of funds. That way you can boost cash flow, improve forecasting and increase confidence in your operational plans.

2. What does your internal payments process look like?

Manual payment processes can take as much as 20+ full time employees to manage payments (Forrester).

You may not have many managing payments at the moment but as your business grows, so will your payments operations if you keep them manual and done in-house. More than 60% of payment decision-makers surveyed by Forrester said the most time-consuming areas are matching payments to invoices and reconciling reporting from different gateways/processors. By adopting solutions and processes that increase control, visibility and integration, you can put a stop to the cascading inefficiencies that eat up your precious time.

3. How many of your payments fail? 

Forester found that 11-15% of customer churn is due to payment failure (Forrester). 

Payment failure means you have revenue held up in unsuccessful payments, you’re spending time chasing customers and you can even lose customers if payment goes uncollected. Forester found that 11-15% of customer churn is due to payment failure.  In a world where it’s harder than ever to attract and retain customers, you don’t want something like payment failure to disrupt that relationship. 

4. What is your total cost of payments?

For two-thirds of B2B and B2C firms, the cost of recovery of failed payments is more than 11% of the average payment size (Forrester).

The cost of payments is more than the direct cost of accepting them, such as transaction fees (which can be as high as 4% for cards). There’s the cost of fraud, which is more common with some payment types than others, and the impact that has on revenue. There’s payment failure rate, which again differs by payment type. And then there are fringe costs such as headcount and other overheads associated with managing payments. All this adds up to your total cost of payments.

How to build an efficient payments process

49% of medium-sized businesses are planning to invest in their payments infrastructure over the next two years. Given the challenges that manual payments cause around costs, delays and visibility, it’s little wonder that so many organizations are planning to overhaul their payment infrastructure. 

And their best bet? Leveraging automation to give them greater control and pave the way to getting paid faster, more cheaply, and more reliably.

Here are four key considerations for firms looking to build a modern and efficient payments strategy. 

1. Connectivity and visibility

Apart from being a major time drain, manual payment processes are clearly a major cause of brain drain for businesses, too.

By instead working with a payments provider that’s automatically connected to the banks and integrated with your existing platforms, businesses could release much of this resource. 

Instead of sharing CSV files with the bank, chasing customers and reconciling accounts, the finance team would be more free to work on strategy and innovation. If they were also backed up by the increased visibility that would result from more integrated systems, imagine what these people who know your business so well could achieve in terms of process optimizations or performance insights.

2. Payment speed 

Waiting to receive funds impacts cash flow and cash flow forecasting, and ultimately limits scope for investment and growth.

Unfortunately it seems that almost every firm is suffering from slow incoming payments. Four out of five have indicated that it takes them more than a month to receive, while average DSO in the past 12 months is more than 20 days across their payment methods. 

As this key financial performance metric creeps higher it leaves businesses more exposed to risk and bad debt. So it’s vital to understand the typical payment timings of the providers you are talking to. Automating your payments removes both the friction and time spent managing payments. 

Businesses working with GoCardless have seen up to 47% faster payment timings overall compared with more manual payment methods. 

3. Payment recovery management

The way you handle payment failure matters. Manually retrying payments can cost you time and money. Often you are waiting on the banks to let you know when a payment has failed and then spending time trying to rectify the problem. 

When comparing the two methods of retrying payments, GoCardless found that only 38% of failed payments are successfully collected manually whereas up to 70% can be collected using payments intelligence and automated retries.

That matters because trying to uncover why a payment failed and re-attempting collection can be a cumbersome and costly endeavor — just ask the two-thirds of B2B and B2C firms who report that the cost of recovery is more than 11% of the average payment size.

Understanding how a potential payments partner handles failed payments is important to minimising the impact of payment failures. 

4. Customer experience

Your customers hate the processes associated with manual payments just as much as your finance team, and for the same reasons. 

Connected and automated billing is your chance to get out ahead of changing customer expectations, and provide the kinds of payment experiences they’ll thank you for. As an added bonus, the added reliability and visibility will help avoid the risk of irritation and even alienation that could occur if chasing failed payments isn’t handled sensitively.

When assessing a payments provider, you need to understand how they prioritise the customer journey and how you can create a bespoke journey for your website and customers. 

Automated Payments with GoCardless

GoCardless helps over 100,000 companies around the world build better businesses with connected and efficient payment processes. 

The whole process, from collection, to managing payments with the bank and reconciling payments is automated and done for you. GoCardless uses payment intelligence to retry any failed payments at the optimal time based on transaction history and to also spot fraudulent transactions before they begin. 

Companies working with GoCardless have seen: 

• 56% lower cost per transaction compared to cards (IDC)

• 59% less staff time to manage payments (IDC)

• As little 0.5% payment failure (GoCardless payment data)

• Up 47% faster payment timings (IDC)