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Filed Under:
billing systems, invoicing, payment

Companies:
acceptpay, american express


Closed: 20 May 2010, 1:46PM PT

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Are You Happily Invoicing Your Customers?

Our entrepreneurship series - sponsored by AcceptPay from American Express - is compiling interesting resources, valuable tips and useful services that can help out small business owners.  One of the key themes we want to discuss is the process of invoicing -- because what could be more relevant to a small business than getting paid?  Every business (small or large) needs to deal with billing customers and efficiently accepting payments.  For smaller companies, though, invoicing and payment collections can become a more time-consuming process than it should be.

For those of you out there who are already happily invoicing -- what kinds of invoicing software do you use?  What kind of billing solutions have you tried?  What is your opinion of online payment solutions? (full disclosure: AcceptPay is a player in this market.)  How would you evaluate an online payment system for your company?

However, if you've ever encountered invoicing challenges that started to eat into the enjoyment of actually running your business, do you have a happy-ending story for your billing solution?  What would you recommend for other small businesses that might have similar experiences?  What kind of procedures have you developed to make your accounts receivable easier to handle and more reliable?

To other helpful folks who aren't (yet?) entrepreneurs, what types of small companies do you think might benefit from using online payment solutions (that may not already be doing so)?  How would you describe the market for online payment services?  What recommedations have you seen for small business invoicing software?

We're looking for your input on these topics, and the best response will be published on the Entrepreneur's Corner edition of Techdirt, as well as receive a monetary award.  Other high-quality insights may also receive monetary bonuses, depending on the content and how many insights are submitted.

7 Insights

 


Any billing system will do the job, provided your clients pay their bills.  But how do you handle the client that doesn't want to pay? 

Let's consider some primary reasons for non-payment:

1. the client really doesn't have the money - unless they are out of business, they can get the money, so this is a non-excuse.  Anyone refusing to pay for lack of available funds should get sent to collections.  It costs $Y for your work X as specified in the contract/sales order/etc.  Negotiating any deal to forgive this debt is entirely YOUR risk, as the client is already demonstrating an unwillingness to pay (so why would they ever pay if you'll just negotiate a new deal each time?)

2. the product delivered does not function as expected - proper documentation up front can prove otherwise.  Next time you think you don't need to create documentation, remember that the client could try to claim this excuse and not pay the bill.  If you don't have the documentation, you are really in trouble.  How can you prove that you did what was expected of you without it?  If you take away nothing from this article, at least remember to get all changes to expectations in writing.

3. the client thinks they deserve a freebie for some reason (possibly because of a perceived slight) - this is all on you to maintain professionalism at all times, and address issues when they come up.  Before you decide on any promotional giveaways or other discounts, be extra familiar with how these will be perceived by your existing clients.

4. the client just wants you to work for free - and why not?  If they can get you to do it, that's great for them.

Most entrepreneurs encounter one of these situations at some early point in their career, and they know now that taking care of that one client can end up costing far more in resources and lost productivity than the entire billing needs of all the other clients.  In fact, one problem client can very easily generate enough overhead to erase productivity and threaten to bankrupt the unprepared entrepreneur.  The following are a few examples of when I have encountered these problem clients.  I will describe my solutions as well as pitfalls that I seek to avoid in the future.

In the lowest-overhead of freelancing situations, it may make sense to doggedly pursue a client who is refusing to pay.  However, seeking payment until you get it does not excuse you from professional etiquette. 

I had one client refuse to pay for an off-hours "emergency" consulting service, because they decided without telling me that this particular instance should be free.  I continued to gently press them about until they finally paid.  I probably would not entertain working with them again based on how much effort it was to get paid in the end, but I also made changes to my invoicing language to help minimize the chance that someone else can feign ignorance and thus try to press me for free work after delivery of services.

In higher-overhead world of corporate on-site consulting services, I would not hesitate to forward difficult clients to collections provided that I had the payment schedule and the related consequences laid out in clear, precise contract terms.  Contracts are paramount to getting payment, and once terms of agreement are signed in any way, those should carry the force of law sufficiently to allow you to collect payment for delivered goods. 

I have seen many instances where clients refused to pay in order to bargain a better deal, or in order to account for new features due to scope creep.  Once you cave in on an instance like this, you open all of your dealings up for renegotiation.  This is where bankruptcy can quickly occur -- i.e. you can end up doing tons of free work.  Every time you try to collect again, the past renegotiation comes up, and you can't hold firm to your terms because you already caved in once. 

My best advice in these situations is to never enter into fee negotiations after you have delivered on the original contract, and to always document everything in writing.  You can sign a brand new contract for additional work from scope creep and negotiate new terms in that contract, but the original contract should carry the force of law and not bend to the whims of the buyer.  No matter how adept you are at negotiating a good deal, allowing the client to chip away at your profits on deals you already scoped out and built or delivered is a losing long-term business strategy.

I have been happily billing for many years now as a result of the following specific tactics that I recommend to everyone:

1. Get it in writing, no exceptions.

2. Re-read any response and edit for the maximum level of professionalism.  Replace opinions with facts, preface estimates as such with the margin of error, etc.

3. Communicate immediately and profusely on any change to the bottom line.  Make sure that the client understands and agrees to the project's cost and deliverables upon each change.

4. Follow through precisely on the terms of the contract regarding any late/non-payments.  Refer to the documentation from #1-#3 if the client has any questions about why something is happening a certain way. 

5. If a change is necessary to the billing process as a result of a client issue, make the change as soon as possible, and communicate the new process clearly to everyone involved.

I am a Sr. Systems Engineer for a major telecommunications company, and a professor of Video Game Programming at a state community college. I have a long history of entrepreneurial activities, especially during the dot-com era.
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john boston
Tue Jun 18 12:15am
You should try fetchflow. They offer full featured invoicing solution for free. It is OS independent as it is web based. You can create Unlimited PDF [Adobe PDF] branded invoices, estimates & PO's. There are many cool features like paypal integrated invoice payments,MS-Excel template based invoicing,Integrated stock & catalog invoicing etc.And many useful add-on,s are also available.

First, I decide to try the methods implied in Mike Masnick's TechDirt blog. I concentrated on providing services <free> in a judicious manner.You see, I am convinced that the present IP system in this country is horribly broken, but at the same time, the reasons the founding fathers provided for it in the US Constitution are still valid, and with the proper system, would greatly enhance our economy (instead of stiffling it, as present IP does).

So, I am in a business that is pretty unique - small entity IP. ALL the attorneys I know that are in IP do large entity IP, both patents and trademarks, so it is natural that clients approach me with some suspicion, and have to be specially treated to even bother to understand why my business is "different".

To counter this, I tend to be quite honest. While I am an ADVOCATE, and cannot legally or ethically try to other than advise and counsel, I can express my opinions of what the IP system is, what the consequences can be for adhering to it, and what small entity IP can do for an innovator. I then offer fairly liberal "pro bono" (free) services for people who really need protection (one client has some people who want to invest in his invention, but are afraid his ideas will be copied by someone and their money would be lost. I (privately) tend to agree; I know some people in a foreign company who are constantly looking for something like his invention, and would pay to use it only if they had no choice.

After carefully offering special counseling (including the free or reduced rate services) I usually gain the confidence of my clients (and that confidence grows with time). I then suggest that I be provided with a retainer, and use the retainer as carefully as I can (trying at all times to reduce my client's cost), with the retainer system then resulting in continued free or low-cost services (which I can afford, since this reduces my costs).

At regular intervals (usually every two weeks) I then report what I have spent to my client.

Of course, if a client wants to do things the "standard" way, where I request permission for <whatever>, I am happy to comply - I simply end up charging more.

So far, all my clients like the way I do things - there are no late penalties, late notices, requests for funds (except the retainers), just a simple tally "this is what I spent, and what I spent it for" - very simple, very little time involved.

Gene Cavanaugh (Marion Eugene Cavanaugh on the USPTO web site) specializes in small entity patenting (what the founding fathers intended in the US Constitution).
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Devin Moore
Fri Apr 9 5:07am
So is your retainer adjusted based upon the amount that you spend? Do the clients get any say in what you're spending the money on before you spend it? Is there any breakdown of the services rendered for the retainer up front?

Although I have worked at many startup companies, it is only recently that I have set up my own. Gestalt IT Media LLC is a publishing and events organization devoted to building up the IT infrastructure community. Although our first group endeavor, GestaltIT.com, had few expenses and little income, our latest effort is quite different. This experience has pulled me into a new world of book keeping, accounts payable, and invoicing.

Our Needs

Tech Field Day is a series of on-site events, bringing together a select group of thought leaders with interesting companies for two days of tech talk. Each event has a substantial budget, mostly travel and administrative costs, and an equal amount of income from vendor sponsorships. Although we are not a profit-motivated enterprise at this point, we are wary of losing money!

The invoicing needs of this small business are simple: We must efficiently and professionally request and process payment from our sponsors. Our invoices must be consistent, contain all relevant information, and serve as a record of payment for both parties. And the system must allow two or three people access to generate and process invoices. But the maze of corporate accounts payable departments and processes has been eye-opening.

Although many companies will happily pay with just a basic invoice, some require a contract prior to invoicing. Others must process the contract and issue a purchase order before the invoice can be generated. A few even use third-party companies to handle this process, requiring us to use their system. Therefore, any invoicing system to be used must be flexible and customizable on a per-invoice basis.

Corporate payment options are equally complex. Smaller organizations are happy to cut a check or wire payment directly to our bank account. Since some of our fees are small, others wanted to use a corporate credit card to pay. The largest companies also have terms delaying payment for 90 days or more. An ideal invoicing system would integrate with these varied payment options.

Finally, we need to keep records of all income and expenses. We would like to know when an invoice was generated, sent, received, and acted upon. For those with longer payment terms, we must track these for months as they work through the system. We would also want the invoicing system to report in a variety of ways, including a full web page, iPhone app, and QuickBooks and csv exports.

Our Experience

For sponsors paying by check or wire, we currently create our own invoices in Microsoft Word and email these as PDF files. This is inefficient and can lead to errors as names and numbers are entered. An automated system for this part would be welcome!

Those sponsors paying by credit card pose a special challenge. Most online credit card processing systems include their own integrated invoicing system. We used have used both PayPal and Google Checkout but found both to be too peer-to-peer oriented for a business. Google in particular is very inflexible: The invoices and receipts it sends are oriented towards the sale of goods, not services. Every Checkout transaction must include a shipping notice, regardless of whether it is for a shipped product or not!

The wide and diverse set of professional invoicing options was a challenge as well. We were focused on planning our event, not selecting and dealing with accounting systems. If we looked, I imagine we could find many options that would fit our needs. Instead, we simply used what we were familiar with as consumers.

The more flexible and professional systems we investigated posed thorny challenges when it came to fees. Most systems seem to offer a free version, but certain desirable features are excluded. It is surprising that credit card processing is often excluded from the free version, since this is an absolute necessity for many and a profit center for the service. One would think that the high credit card processing fees they charge would be enough to subsidize the invoicing service!

Our Wishes

We would like a system that matches our needs, both in terms of service and payment. Small businesses cannot afford to commit to a monthly charge for an invoicing system. Instead, invoicing services should charge fees only when money is received. We would happily pay a higher percentage fee for credit card transactions, for example, if the monthly fee could be eliminated.

We also need flexible reporting and exporting options. Each small business is different, and many use a variety of home-grown tools to record their finances. This reporting system should also allow multiple user profiles, some with view-only access. If it was integrated with popular accounting products and web services it would be even better.

Handling finances is a major challenge for entrepreneurs. Unless one is focused on accounting or has the help of a professional, the prospect can be daunting. Services geared toward this market must be affordable, flexible, and offer assistance in getting started.

Stephen Foskett is an enterprise IT consultant focused on infrastructure strategies. He is Director of Consulting for Nirvanix, Founder and Community Organizer for Gestalt IT, and a frequent speaker and author on IT infrastructure topics.

Online invoicing is probably one of the most effective methods of billing because it is convenient. Believe it or not, my biggest headache as a business person is to get my checkbook, find your invoice from my mountain of invoices, write the check, try to find an envelope, try to find a stamp, lick that sticky stamp, end up taping it because I didn't want to put it in my mouth and the hardest part; drive all over to try and find a mail drop, which doesn't seem to exist any more.

I don't think it is a good idea to put all your eggs in one basket. I think the first requirement of being a healthy business operator (free of high blood pressure, heart trouble, ulcers etc, due to inability to collect invoices) is to accept the fact that many people buy products from small businesses without any intentions of paying for it (or at least if they can get away with it). This is why the invoicing must be more of a collection system. If you are billing your customers here and there, then you are not going to appear very serious. 

I never understood how businesses spent all their resources on every thing but their life-blood, which is receivables. I'd suggest online billing as the first and most convenient start, followed by a paper invoice if no payments within a certain time frame. It really pays to hire an account manager to start calling on the customers that are delinquent. The last step is a personal visit by your account manager (if local), which is much easier than you think. You are walking in a business or home that made a obligation to buy your services or products. I've walked in hundreds and hundreds of homes and business and had lots of fun meeting great people. You are not selling something. You'll meet a lot of nice people that forgot to pay or did not take you seriously, who will now try every possible method to pay you, since you are so pleasantly professional and took the time to stop by and meet them in person and to see how things are going for them and their families because you are so personable, friendly, understanding and concerned (important image to have while collecting invoices). I've never used a collection agency and honestly cannot remember too many invoices (if any) that didn't get paid unless it was for a legitimate reason.

Bought and sold series of small advertising agencies, insurance operations, restaurants, night clubs and online operations in California, Hawaii and Washington. Semi-retired recently but always looking for a new purchase or start-up.

The Maunual Way

We are a small company that handles the data processing side of direct mailing.  Because of our size, we do not have any extensive software systems to perform the processes of invoicing and payment processing.  We have developed a set of Excel spreadsheets to handle the task of invoice generation.  The plus side is that they are highly customizable and easy to produce.  The downside is that they are not integrated into any backend systems to track payments.  This too, is manual in that we have to update a separate spreadsheet to show any payments and update a customers balance.  If a customer is delinquent, it takes the sharp eye of our business manager to spot the overdue amount and take any action on it.

A Better Way

We are perfectly positioned to use an online Invoicing and Payment Processing system.  Such a system would have to be evaluated in regards to price, functionality, stability, & redundancy.

Price

Let's face it.  We are not a company of unlimited funds to spend on any software package that comes along.  Any solution must be affordable and provide value to the company.  The cost of the service would have to be offset by a decrease in DSO dollars (Daily Sales Outstanding).  If the system can alert us to overdue money that we overlook, that has value to us.  A system that charges by the volume of transactions would be ideal.  Our business fluctuates and so do invoices and payments.  Let me pay by volume.

Functionality

The online invoicing and payment processing service needs to come with a host of features that a small company would find attractive.  Alert functionality is such a feature.  Tell us when a customer is past due so we can proactively seek the overdue amount.  Easy integration with our order entry system is a must.  I need to be able to transfer order information to an invoicing system quickly and painlessly.  Simple tracking of customers payments is another feature that holds value for us.  Also, some kind of export that will create an automatic bank deposit to record the payments that do come in would be nice.

Stability

By stability, I am talking about the company that is providing the online invoicing and payment processing service.  The company should be a long time player in the payment processing market.  This is key for small businesses.  If you partner with a start up in this field and they do not survive, you have left yourself exposed in this area.  A business would then have to scramble to find another method of invoicing or try to resurrect the original way they were doing it before.  Either way, it could severly affect a businesses operations.

Redundancy

This goes along with stability.  What happens if the service gets interrupted for some reason?  A disaster or outage.  This weighs on the mind of any small business.  A company that is providing an online payment processing service needs to offer some kind of redundancy in their systems.  Is my information backed up to a place that I can easily get access to it?  Does the main computer system automatically fail-over to a back up system in the event of an outage?  These are questions that would need to be answered by any company offering services in the online payment processing industry.

A Win-Win

A service that offers online invoicing and payment processing would add value to my company.  The ease of automatically creating invoices and handling the payment tracking for my customers is a definite benefit.  As long and the service is affordable and the company providing the service is sound, this type of solution sounds like a Win-Win proposition.

President of direct mail service bureau handling mailing list data processing, Address Correction & Verification, NCOA, Merge/Purge Processing.

As a small business owner, I do not invoice as much as some people. However, at times, there are a lot of invoices to send. When I started my business back in 2002, I created invoices myself in a wordprocessor. I quickly became tired of it and looked for a solution. There wasn't much out there by then - and I am an open source specialist and lover, so I was looking for something particular.

I decided to create something myself. So I wrote a couple of php scripts, setup a mysql database and over time, the application became more and more intelligent, and better capable of handling my invoicing needs.

When my business grew, I had little time left to keep working on it and maintain it. So I looked for a solution again. I used an open source package for a while, which was worse than what I had created. More recently though there was more choice on the market. I looked and compared a few solutions and chose to go with Zoho Invoice. And I have been using that for a couple of years now. Here are the reasons.

First of all, it works. It allows me to invoice in Euro's, and if I really need to, in USD. Second, it has a perfect mail engine that allows me to send the invoice directly to the customer, with attachments if needed. I often need to attach approvals, so that's cool.

Modifying templates for invoices and other forms is pretty easy and works well. More importantly, the template is up to the local (EU) standards for invoices, and Zoho offers the solution in different plans, which can be changed every month. For example, if you have a maximum of 5 invoices per month, it's free. But if you have more than 5 invoices this month only, you can simply upgrade, and downgrade after. That way you never pay too much.

The software integrates with other Zoho software, such as Zoho CRM, which can be very profitable if you're doing a lot of sales. Default is pdf export and more.

I tried a few others, but wasn't satisfied. I think Zoho has put a few features in the invoicing software that make them winners with it.

Servaas Schrama is a small business owner from the Netherlands. He has worked for himself as of 2005. His company specializes in IT solutions.

What small companies would benefit from an online payment solution?  The ones that I work with, for starters... I run a fairly successful web magazine, and we're currently running ads from six of the top online advertising brokers. It's amazing how much trouble they have delivering their payments, and they also seem to have real problems invoicing their own customers!

For example, one ad broker actually changed their pay period to once every six weeks, presumably to minimize the number of paper checks they'd need to mail to their network of web sites. Then each six-week period is followed by another one-week dead zone where they actually finalize all the individual printed checks, plus another two-week window when those checks are actually mailed. And when the checks arrive through the U.S. Postal Service, they only contain some of the money they've collected from the advertisers -- possibly because they also don't have a good online payment system for receiving money. Though I've also wondered if their weakest link is a bad invoicing system. In the paperwork they send me, I can see that their "accounts receivables" seem to linger on the books for a minimum of three months, and often even longer!

There was a happy ending, when, earlier this month, I made a startling discovery. Neither they nor I had noticed that none of their checks had arrived for the entirety of 2009. (Yes, I'd gotten so used to their checks being late, it took me that long to realize they'd stopped paying me altogether.) We worked it out, and today, to my delight, I discovered a four-digit "catch-up check" waiting in my P.O. box. Of course, there's another possible conclusion. Maybe I'm the one who needs a better invoicing system...

I think most self-employed contractors and freelancers eventually run into the same problem. In my case, I've got six different advertising brokers to keep track of -- plus an expanding series of side projects.  Most freelancers eventually branch out into other areas to "diversify" their income streams, and a good invoicing system can handle the transition seamlessly. Otherwise, you're staking your entire cash flow on a home-made spreadsheet called "MONEYS OWED.xls"

This is all good news for anyone trying to market a new online payment system, since there seems to be a huge and untapped need for an effective system for both online payments and invoicing. That's starkly evident from my experience with online advertising brokers. Virtually all of their business is conducted online, since they're selling only online advertisements, and exclusively on online web magazines. And yet their payments are still issued through paper checks sent via snail mail!

Amazingly, even Google and Amazon refuse to issue their advertising payments through an online payment system. Amazon Associates only offers two payment options -- direct deposit into your bank account, or a payment by paper check. (Even then, the checks have a $100 minimum.)  And even Google -- yes, Google! -- only offers the same two choices for revenue generated through AdSense accounts...and with the exact same minimum of $100. I remember the day I proudly returned to my personal blog and posted "I finally got a check from Google AdSense -- after three and a half years." And then I linked to a web site which seemed to hold Google's dirtiest secret: that Google could owe a whopping $400 million to 8 million bloggers...in 8 million $50-dollar increments.

Here's a humorous side note. Amazon has actually tried to turn this weakness into a strength, by offering a third option: receiving advertising payments in form of a gift card which can only be spent on Amazon.com...

But it's the age of computers now, and it seems like it should be possible to easily automate even a large number of smaller accounts. I remember the time I interviewed Jennifer Ringley -- of JenniCam -- who'd essentially started the internet's first webcam business back in 1994. She always seemed to be struggling with finding the right online payment system to handle her growing base of subscribers, and it was ultimately one of the reasons she gave for pulling the plug in 2004 -- after nearly a decade online. It's a story that I always remember when considering how to run a business online.

If you can't find a payment system that's quick, efficient, and simple, eventually it can drive you out of business...

David Cassel has been covering the technology industry since 1995. One of his proudest moments was when his team's web magazine published an interview with Steve Wozniak...
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