Taking Your Invoicing and Accounts Receivable Management Online

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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A long-standing cash-flow dilemma is finding the right balance between getting fast receipt of customer payments and minimizing fees and discounts associated with collecting those payments as quickly as possible. Finding payment methods that fit the needs of your business and offering the options that are right for your customer base adds to the complexity of figuring out how to get paid fast without compromise to convenience or security.

Years ago, my clients loved payment by charge card; now, many trust and prefer third-party online payment providers. There seems to have been an inverse relationship between quickness and cost:: the faster the process, the higher the fee; the slower the process, the lower the fee. A check sent through the mail by your customer and its subsequent deposit in your bank account was generally cheap compared to alternatives.

Times have changed. Getting money faster may now be the least expensive approach.

Among the reasons for low-cost payment acceptance is the emergence of the e-check (ACH transaction). Eliminating some steps and quickening other processes for invoicing, payment acceptance, settlement, and funds deposit have also sped up collections and reduced administrative costs. Online invoicing and A/R management services can enable this approach.

There are many options, ranging from no cost for basic services to $100+ per month for premium services. Standard features typically include these capabilities:

Online Invoicing

• Set up customer accounts.
   
• Create and send company-branded invoices for both one-time and recurring services.
   
• Enable customers to make a one-time payment or store account information online to facilitate payment of recurring bills.
   
• Present payment options to customers (generally, charge, credit, and debit cards and e-checks).
   
• Accept and process payments.
   
• Generate company-branded receipts.
   
• Automatically send reminders of upcoming payments due, recurring bills or installment payment invoices, card expiration dates, second invoices, and late notices.

Online A/R Management

• Post payments to customer accounts electronically or manually (for payments made over the phone and face-to-face).
   
• Deposit funds in your bank account, either automatically or by requesting a transfer.
   
• Monitor A/R activities through a dashboard that presents information such as pending payments and recent deposits.
   
• Produce standard and customized reporting of A/R aging, customer balances, consolidated payments, and more.

Many offer add-ons that equip your business with tools and/or technical support your business needs to integrate online invoicing and A/R management functions with your website and accounting software. Still others have features that facilitate sales and payment processing offline by allowing your business or your customer to print invoices, post payments to accounts, and print receipts.

Some cater to specific industries and types of businesses. For example, online features may include project-management tools that allow your employees to record hours dedicated to certain projects for use in preparing client invoices (with the bonus of tracking project tasks, expenses, and progress). Other services accommodate installment billing for companies that sell big-ticket items (or big-ticket services, such as orthodontia) or facilitate payment of tuition expenses for schools, child-care centers, sports instruction, etc.

What online services don't seem to make easy are offering credit terms with opportunities for early-pay discounts, such as a 2 percent break for paying a bill within 10 days rather than the standard 30 days, for example. Making adjustments to invoices seems tricky as well; traditionally, A/R departments can make adjustments to reflect discounts off standard pricing or correct discrepancies between proposed orders and actual deliveries. Some businesses may need to create second invoices or issue refunds for certain adjustments to handle these tasks.

Your business may have developed its own online-offline hybrid method of A/R management, changing and updating your processes as technology solutions become available, easy-to-use, and acceptable by your customers. As your business continues to move from offline record-keeping to online invoicing and A/R management, keep reviewing and updating accounting procedures. Make sure customer accounts are credited appropriately, especially if you are giving early-pay discounts or making slight invoice adjustments.

When evaluating online service offerings, consider set-up fees including website integration, monthly charges, merchant account fees, and transaction fees (per-item and percentage charges).

One of the greatest benefits of online accounting services is security.

Reputable providers will safely store customer account information on your behalf so that recurring charges can be made easily by your customer but you don't have the worries of protecting this data. Payments made by charge, credit, and debit cards can be accepted, processed, and settled in compliance with Payment Card Industry (PCI) standards. You'll need to conduct due diligence on providers and maintain accountability for confidential information, but the bulk of this responsibility is outsourced.

Product-oriented ecommerce businesses have been using third-party shopping-cart software for years, collecting, processing, and settling payments at the time that goods are sold. Service-oriented businesses that generally bill customers after the delivery of services can now benefit tremendously from similar technology.