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Taming the Beast of Small Payments: A CFO’s Guide to Streamlining Revenue Collection in IT Services
IT Services is an industry that never stops. Everything’s constantly ticking over – new tech, new offerings, new customers, new problems.
And one of the most common problems is chasing small payments.
If you’re an IT Services CFO, you probably rolled your eyes at the thought of it, muttering “YEP.”
It’s the last thing you need. You’re already in charge of keeping the fiscal health of the business tip-top. That’s enough pressure! Yet here you are, with your team, spending time on the phone and in your email trying to get these little tiny payments.
It’s a tedious, time-consuming task. It stops you from doing all the things you were hired to do.
It’s the stuff of nightmares.
That’s why we’ve written this article – to talk through this big challenge and give you some strategies that can rid you of this troublesome practice forever. Sounds good, right?
5 Main Causes of Chasing Small Payments
There’s always a cause for a resource-sucker like chasing small payments.
Do any of these sound familiar?
1. Wide Client Base
It’s fairly common for an IT services company to have a wide variety of clients – could be families, students, fledgling startups, huge corporations and everything in between. Especially in this uncertain economy, people have limited budgets. That means smaller invoices that vary depending on usage tracking, and possibly more frequent payment cycles.
2. Complex Billing Models
Things are always changing in IT Services. There are new products, packages and offerings for an ever-changing base. This means complex billing models based on time spent, project milestones, resource usage, subscription nature, package, etc. This complexity using creates a lot of little invoices rather than consolidated ones, which means you’re dealing with a large volume of payments that you have to manage.
3. The Dreaded Delayed Payments
Some clients may delay payments due to cash flow issues, disputes over services, or simply oversight. This forces the finance team to engage in a continuous cycle of follow-ups for each outstanding invoice, further complicating the payment collection process.
4. Not Using Preferred Payment Methods
Customers are human. They make mistakes. And they forget things. Businesses that are rigid with their payment methods might make customers have to take extra steps to make sure those payments are made. The more hoops they have to jump through, the less likely they’re make it all the way, every month.
5. Manual Billing Processes and Mistakes
Your staff are human too. When they have to manually invoice, especially if you have thousands of customers (or more), mistakes are inevitable. But these inaccuracies will cause a chain reaction of problems – time spent recalculating and re-reconciling things, disputes, follow-ups, reissuing invoices, and additional delays in payments.
Why Having to Chase Payments Is So Dangerous
To an outsider, each missed payment might seem fairly harmless (albeit annoying) – after all, it’s only a phone call here or email there.
But each one of these adds up to a beast that you have to contend with- a beast that can create chaos for you.
1. Unstable Revenue
As the CFO, you need to know where the company’s revenue is. You need reliable cash flow and numbers. But small, unpredictable payments mean you contend with fluctuations in revenue.
How are you supposed to accurately forecast future cash flows? How can you rely on your numbers for excellent financial planning?
2. Wasted Hours
The one thing we can never get back in life is our time. And unpaid invoices are the biggest, unnecessary waste of time that financial teams experience. Think about how much your time is worth by the hour. Same with your finance team.
Now think about how many hours you all spend chasing those invoices. Add on top how many hours you all are not spending on high-value strategic financial tasks and analysis. Add it all together. That’s the REAL cost of chasing unpaid invoices.
3. Stress
Chasing unpaid invoices is a constant pressure that will inevitably lead to higher stress levels for you and your team. The higher the stress (especially stress that doesn’t need to happen!) the more it impacts morale and productivity.
4. Impacts on Other Teams
When your revenue is uncertain, that can impact others over the long term. It’s harder to confidently allocate funds to other departments. It makes things unpredictable and hinders operations and strategic planning.
5. Customer Relations
No one likes getting bothered, even if they’re in the wrong! We know it’s not fair, but if you are constantly folllowing up with them for payments, you’ll strain your relationships with them.
They’ll associate your name and brand with annoyance. And that will make it a lot easier for them to leave your brand once they get a tempting offer.
All of these sound terrible. And at least a few of them might sound familiar.
What Can You Do?
The great news is that you can do something to change this. Here are some actionable steps that work to turn the tide and end chasing small payments forever:
Implement Clear Policies
It’s okay to establish firm policies about late payments, including penalties or interest charges which will discourage some delayed payments. It’s important to clearly communicate these policies to your customers. One caveat- if your delayed payments are usually down to your side – things like invoice errors, usage adjustments, etc. – then this type of policy might turn your customers off!
Start Quality Control Measures
Starting a system that double-checks invoices will help ensure they are accurate, detailed, and clearly itemized services. That means you can stop disputes and delays in payments before they start. Yes, it means more hours, but at least you won’t pay for rectifying invoices.
Offer Customer-Friendly Payment Options
Whether that’s contract terms or the customer’s preferred payment methods, meet your customers where they are. When you make payments as effortless as possible for customers, you’ll increase your chances of getting paid on time, every time.
Create a Dedicated Collections Team
A team that’s focused solely on collections will free up you and your team to focus their time on strategic tasks that take the company forward. You can train this team to communicate with customers in a way that won’t alienate them too.
Bring Automation In
You could do all the things above, or you could bring in automation, which will take care of all of them for you. It’s the ultimate solution to chasing payments. Automation consolidates billing, sends reminders for upcoming payments, automatically calculates and sends out invoices, reconciles them back to the system, and provides real-time visibility to anything outstanding. When you automate the end-to-end billing process, you eliminate human error, boost reliable constant revenue, know where your finances stand at all times, and reclaim your time. When you were brought on as CFO, no doubt you had a very clear idea of how you wanted to move the company forward.
But you know that when you’re too busy chasing small payments, you won’t have the time to do the things you want and need to do.
However, taking proactive steps to get to the root of this problem will empower both you and your finance team to improve efficiency and enhance the financial stability and growth of your company.
Why not start that dedicated move to financial excellence now?
Let’s chat further.
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