Invoicing Should be Easy!
It’s simple, right? You send customers an invoice and they pay up. But the process can be so much more — it can be an opportunity to improve business relationships and gather useful data. It’s called “customer-smart invoicing,” and it’s about more than just money.
What’s the problem?
Ask contractors why they’re not getting paid and many might say, “They don’t have the money!” Just last year, postsale relationship consultants TermSync surveyed businesses about delayed payments. Some 49% of respondents blamed purchase order (PO) miscommunications as the top reason for tardy accounts receivable. Insufficient funds did come in second, but at a much lower 27% of respondents.
This is actually good news. You can’t do much about your customers’ cash flows. And, in the “paid when paid” environment of the construction industry, payments will likely always be challenging. But you can improve the invoicing discrepancies that could be causing payers to set your bills aside to call about later — much later.
How well do you communicate?
Customer-smart invoicing is broadly based on two concepts: communication and information. Let’s start with the former, for which your objective is to prevent the PO perplexity mentioned in the survey above.
Start looking at invoices as opportunities to reach out to customers and initiate positive interactions. For example, several days after sending out invoices, you might dispatch follow-up e-mails expressing gratitude for the business, requesting confirmation receipts and asking whether anything is unclear.
For high-importance customers, you could get your sales staff in on the process. Have them make phone calls — not to demand payment, of course, but just to ensure the invoice got there and to clarify any confusion as to its terms.
Are you learning anything?
The second major aspect of customer-smart invoicing is information. Or perhaps a better word might be “education.” By tracking a few key metrics, your invoices can teach you invaluable things. Such metrics include:
- Time to payment. The time from the date you remit an invoice until you have the check in your hands should, obviously, be as short as possible. But it’s important to track trends to make sure payment times aren’t dragging out of control.
- Accuracy of invoicing. Total the number of invoices you’ve sent out over a given period (say, six months or a year) and then compare it to the number of customer questions or disputes. (You’ll need to start tracking those, too.) The resulting ratio should be as far apart as possible — if you’re creeping toward 1:1, something is definitely wrong!
- Time to resolution. As you track customer invoice inquiries and disputes, record the date of the very first interaction and the date of resolution. If it’s taking many days or even weeks to resolve problems, you’ll know (at least partly) why your collections and cash flow are suffering.
- Customer satisfaction. Gathering this information can be as simple as asking customers to fill out a brief (three to five questions) “on a scale of 1 to 10” survey about their experience with your construction company. You can include this as a postage-paid card in paper invoices or as a hyperlink included in e-mailed or online invoices.
Where to begin?
Adapting to customer-smart invoicing doesn’t necessarily mean overhauling your entire system. To begin with, identify the areas that need improvement and then decide whether better customer communication or gathering more information could serve you well.
Contact Bob Smolko at 216.831.7171 or rsmolko@cp-advisors.com to see how the Small Business Group at Ciuni & Panichi, Inc. can assist.
You may also be interested in:
The Costly Consequences of Fraud
Are You Taking a Tax Deduction for Mileage?
© 2014
