Accounting Advice

FAQ Roundup: Sales and Accounts Receivable

Fact:  everyone enjoys getting paid, especially the small business owner who is grinding away, doing what they love and trying to make a living doing it.  Managing invoicing and following up on payments owed are some of the top reasons people turn to outsourced accounting. 

Sales and AR roundup

You may have heard the term “A/R” or Accounts Receivable at some point; whether in the corporate world or in passing.  It is just a fancy way to say “money you are owed”.  While it may seem like a pretty straightforward process - do a job, or sell a product and get paid, it can get complicated, especially as you grow.  This is why it is important to develop good habits from the start, to ensure you are tracking things and getting paid in a timely fashion, whether that’s two clients a month, or 200.  To help you get started, we have compiled the answers to some of the top questions small business owners ask about getting paid.

 

Should I Accept Credit Card Payments On Invoices?

A service based business owner asked us about accepting credit card payments from clients/vendors.  These are specifically for larger amounts, in the thousands to tens of thousands of dollars.  These are amounts where three percent charges can make a minimum $300 plus dollar dent in each payment.  If you have ever billed through some of the more popular invoicing Apps; WaveApps, PayPal, Quickbooks or similar, typically there will be an option to accept payment via credit card.  Most times that will come with a fee.  In this instance (and in many we encounter), the business owner has concerns about the potential loss of revenue, but wanted to provide the opportunity to be paid quickly at the same time.  She needed help weighing out the pros and cons, as many do.

 

We narrow things down to a few key items to consider to make the best decision for your business:

 

Are you going to have problems getting paid by this customer if you don’t accept credit cards?

The credit card fee is worth the sacrifice in the case of a potential non, or late payer.  If there are certain clients that will pay you in a timely fashion, because they can use a credit card, this is going to need to be filed under the cost of doing business with that customer.  At the end of the day, getting paid minus the processing fee is better than no payment.  Just be mindful to not constantly be eating costs because you “just have to get paid”.  Being proactive in this area can help you maintain your margins and be paid in a timely manner.  

 

Strategically increase pricing to cover these added costs.

Especially in the cases where credit card payment is essential for timely payment, you should adjust your pricing to cover the fee.  That being said, there are a few ways to do it, and this will depend on your circumstances.  You can straight-up charge the cost of the payment processing on the invoice, you can up your fees to cover it inside the service or product rates, or you can raise rates just for certain clients that repeatedly add this cost to your invoicing.  Take a look at your agreement with these clients and adjust as needed so that it meets your needs for future payment processing, without damaging relationships.  Maybe it’s an overall rate increase with a new contract, or maybe it’s as simple as a new rate on the next billing cycle.  

 

Look at it as a cost of doing business in terms of cash flow.

Look at the added cost of the credit card fee and apply that to other areas of your business.  You may accept a loan at an agreed upon interest rate to cover costs and keep cash handy right?  Some revenue may come at a higher cost, but still benefit your bottom line.   Accepting the included additional cost of a client who pays by credit card is a similar scenario.  

 

Another way to think about it is this.  How will delaying large payments in an effort to avoid a fee adversely affect you?  You may have to take out a loan at a not-so-great price to cover regular costs, like paying contractors, payroll, etc.  You may need to take additional time out of your day to communicate with said vendors, customers, and/or lenders, which will easily eat up that money in your precious time.  Time better used expanding your business.

 

In summary, you should prioritize timeliness of payment over type of payment.  Keeping cash flowing is your focus, here.  Be smart about the added fees and find ways to build that cost into future invoices or rate increases.  It is quite likely you will be eating that cost and then some, waiting on a perfect payment scenario.  The benefits to earning or keeping more business as a result of accepting credit card payments can help you a lot more in the long run.

 

Do I Need To Invoice My Customers Through Quickbooks?

You would be surprised to hear how many small businesses have Quickbooks or a similar accounting software, yet they are sending invoices in the form of a .pdf, .doc, or spreadsheet that has zero connection to the accounting software itself.  This is often the case with the more creative types, who refuse to have cookie cutter layouts.  Whether they are remembering the QuickBooks desktop days and cringing at the bland invoice designs, or just don’t know any better, this FAQ is still a very hot one.

 

The common cases outside of the pure formatting element can be if the customer is not going to be paying quickly (like a wholesaler), or the process is “easier for them to manage”, because they don’t know any better.  PS - there is zero shame in this one.  Most business owners are not well schooled in the inner workings of accounting software, like Quickbooks.  We see many just avoid it, fearing they could screw it up more by attempting to do too much.  See why outsourcing this stuff comes in handy? 

Here are the key areas to consider for invoicing best practices, especially when you are using an accounting software option:

 

Invoices should be entered into Quickbooks in real time, regardless of when they are to be paid.

Whether you are asking to be paid now, or on Net 30 terms, that doesn’t change when you need to enter an invoice into your accounting system.  Create the invoice, and email it to your customer.  There are two giant reasons this should be done:

  1. It immediately gets recorded as revenue in your Accounts Receivable, so you have real time information about your revenues and accounts receivable.  You can now manage your accounts receivable accurately on a week-over-week basis moving forward.
  2. Once it is in your accounting system, you can turn on those payment options, like ACH, Credit Card, etc.  Your customer now has the option to pay right there through the invoice.  As soon as you are paid, the system automatically does its thing.  It records the payment and applies it accordingly.

 

Why you need to have visibility over Accounts Receivable from the date you sent the invoice

So why do you need to see that open invoice for so long, if you know you aren't getting paid for a while?  The age of an invoice matters.  You should be monitoring payments owed and the age of invoices on a weekly basis.  This allows you to follow up as needed as you get closer to a payment, or when a payment date passes.  The cool part about most accounting systems is that you can build in or automate email reminders at certain intervals, as well.  Failing that, your weekly look at your accounts receivable will certainly spur any follow up needs if an invoice is in need of attention.  For the record, reviewing open invoices on a weekly basis is best practice.  More on that later. 

 

What’s the alternative?  Sending a pdf version, with zero logging of it in your accounting system, forgetting until you have a low balance in your business checking account, then scrambling to find dates and contacts to ask to be paid?  Hoping to remember to add your fancy .pdf invoice in, then manually recording the payment later on?  That’s literally the opposite of how you should be managing your invoicing or accounting in general.

 

Create efficiencies in your accounting processes.  Let your software do what it does best.

Again, we will bring the idea of creating scalable processes and efficiencies into your business, so that you can manage the small client base or the massive one with the same precision.  Use your accounting software to invoice and do what it does best.  By using this software, you (as mentioned above) are able to see accurate data and pull accurate reports.  You are also able to follow up as needed.  In addition to the management side, it also makes it WAY easier to get paid.  You can turn on multiple forms of payment, so your customer can easily add their payment info via ACH, add their card or address it immediately, versus any back and forth or check mailing.  You can also easily follow up with automated emails.  Another cool feature is that many of these programs will share if they’ve opened the invoice and when.  Knowing when they have looked at the invoice will give you an idea that they are at least aware of it.

 

For the creative types already freaking out about having to use their accounting system. 

The customizability of the invoices themselves, and the emails that send them are pretty darn robust.  Don't let design keep you from proper bookkeeping, or getting paid.  There’s zero glory in being the guy with the nicest invoices that went out of business for lack of A/R management.  And guess what?  It’s an accountant likely dealing with your invoice anyway, not the CEO you want to impress.  They are not going to be thrilled by your hour-long design efforts on your .pdf invoice.  Chances are, they are probably rolling their eyes at the fact that they can’t just set you up as an ACH payment, because you’ve made it complicated and manual.  They want numbers, details and payment type. Then they want to address it and move on.

 

Use your accounting software for what it is designed to do.  You will enjoy better visibility, real time data, precise tracking, easy communication, and reporting.  Enter an invoice, send it to your customer, see when they opened it, get paid, see that payment applied.  Get paid and move on.  Bother anyone taking too long to pay you until they do.  Repeat.  Simple as that. Use that wasted invoice design time on your client’s products and service delivery.

 

How Often Should I Review My Open Accounts Receivable?

So you are worried about the way to ask for payment, and concerned about what that will cost you to receive it, but how often should you be looking at who owes you money and how much is still owed?  As mentioned above, you need to enter invoices properly in order to review them, and looking at this on a weekly basis is best practice, but there’s more to it.  

 

Set yourself up for success by invoicing in a timely manner.

Before you review who owes you money and where to apply a payment, you need to ask for payment, and ask for it promptly.  The key to keeping A/R on track is to start by invoicing efficiently.  If you have customers on terms, imagine if you add a two week delay to that NET 30 client, just because you didn’t send the invoice on time.  What happens when they don’t pay at that 30 day mark?  Now you have an even later, late payment situation.  That’s on you, so do your best to set your cash flow up for success from the beginning.

 

What happens in that regular review time frame?

We’ve established that you will need to be checking on your A/R weekly, but what does that entail?  In a nutshell:  review weekly, follow up weekly.  Going back to what accounts receivable is, it is the amount(s) you’ve invoiced a customer.  This is for a service, product, anything that you are owed money for, essentially.  You deliver that service or product according to previously agreed upon terms and conditions.  The invoice is saying, “I now need to receive money on that invoice per the terms that we agreed upon”.  You will need to review who has paid, who is within your terms, who hasn’t paid, and who is creeping outside of their terms.  Next, it’s important to reach out to those who owe you money.  A simple email or call asking about the status of the payment is a good starting point, but you may need to get more persistent.  Many customers experiencing their own cash challenges may take some active pestering to pay.  More on that piece in a bit.

 

What A/R happens outside of the regular review time?

You are likely already “accounts receivable-ing” during the week and not realizing it.  Things like grabbing a check from the mail and depositing it, invoicing customers, and applying payments are all weekly things you most likely are just handling.  Bonus points if your accounting app is applying payments and sending reminders for you.

 

Addressing the awkwardness of asking for money.

This is a huge area that calls for outsourcing bookkeeping, but there are ways to manage it tactfully yourself, whether you are an outspoken non-profit activist, or an uber artistic introvert.  No one likes to have to ask for money, but as a business owner, you will very likely encounter the situation where a client owes you money and they are late.  How much their late payment influences your cash flow, it shouldn’t matter.  If you have provided a product or service, they owe you money as agreed upon. It’s on them to deliver at this point.  Keep that in mind, when communicating.  Following up weekly is best practice, and this is another case where the squeaky wheel gets the grease.  Being persistent will pay off.  Literally.

 

A common concern in the small business world is that the point of contact for payment is often the point of contact that fosters the client relationship.  They are worried about damaging that relationship and losing the revenue.  There are two things that can help that situation be less awkward.  Firstly, you can hire a bookkeeper to manage the process for you.  Your second option is to use a generic accounting contact email and address them as the bookkeeper or accounting contact for your business.  Before you start thinking “but that’s dishonest, I’m not the/ I don’t have an accountant …”.  You are.  If you are managing your own books, you are acting as the accounting point of contact for your company. You may have also just made an argument as to why you should outsource that accounting stuff, but we digress.

 

The Basics of Sales and Accounts Receivable Management in a Nutshell

Accounts Receivable is best managed on a weekly basis to ensure timeliness of payment.  Start off on the right foot by invoicing right away, and keep an eye on aging invoices.  Follow up diligently, and ask for payment the moment it gets in the realm of being late.  Your weekly review and timely invoicing will give you the opportunity to stay on top of cash flow and spot potential problems before they become disasters.  Set yourself up for success by automating what you can, and always flow invoices and payments through your accounting system, so that timely and accurate data is at your fingertips.

 

For more information on accounts receivable, invoicing, and getting paid, you can consult these articles:

For the readers who are even less excited about taking this all on after reading these how-tos, we are here to help you.  Take a look at what we offer, and tell us a bit about your specific needs.  We'd be glad to help take this off your plate.

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