The struggles of many small to mid-sized businesses are directly tied to the billing process. In short, they cannot get their customers to pay on time or simply can’t predict their revenue with any certainty because they can’t efficiently collect it.
What makes matters worse is that because billing is not the core focus (the product or service is) and is not the most glamorous part of running a business (as, for example, marketing), it is easy to neglect.
Generally, though, many small business owners are confused about the billing process. They don’t know what it entails nor how to streamline and make it more efficient, which often has fatal consequences for their enterprises.
This article will take a closer look at the billing process. We will define it and discuss its purpose, break it down to reveal its individual parts, and explain how automation can solve most billing challenges affecting small businesses.
The billing process constitutes the steps you follow in establishing what customers owe you for goods or services you supplied and then requesting, tracking, following up, and collecting payment.
Also referred to as the invoicing process or billing procedure, this critical business process is often reduced to just sending invoices and collecting payments, but it involves a lot more tasks.
To bill is to charge or demand payment for something. And since businesses exist to make a profit, billing is central to your success as a business owner.
The billing process, however, should not be confused with the billing cycle, which is how often you request payment from your customers. Most companies have monthly billing cycles.
To clear another source of confusion, the terms bill and invoice mean the same thing. Customers usually use bill to describe what they owe, while a businesses use invoice to describe and request what the customer owes you.
There are different ways businesses bill customers that follow more or less the same process. These are:
The billing process establishes what a customer owes you so you can request and collect payment on time.
Only after you have established what customers should pay for and how much they should pay can you itemise everything on an invoice and formally demand payment.
Your prospects as a business rest on your ability to accurately ascertain how much you are owed, prepare an accurate invoice, and send that invoice on time.
If you under-claim, your business will not be profitable. Claiming more than you should means you are cheating customers, which can cause them to withdraw their business. Your business can’t survive if you lose more customers than you recruit.
Not billing customers and getting paid on time also has a damaging effect on your business. It reduces your cash flow, which is your business's net cash balance at a specific time. The net result of this is you will struggle to pay your suppliers.
From this understanding of the billing process, it is clear that every part of it is as important as the others. Neglecting one part undermines the process as a whole and means the central goal (revenue collection) will not be fully met.
So, what are the steps of the billing process?
There is an important reason why billing is a process or procedure. Billing is not an event or a simple box that you must tick. It involves a series of steps that must be followed in order. There is an established way you must do it.
Following the standard billing procedure eliminates errors, aids compliance with accounting principles and revenue reporting laws, and, crucially, ensures you get paid on time.
The billing process typically involves the following steps:
This is where you establish what you supplied the customer and in what quantities. You will also verify the prices, the customer you are charging and their contact details, and the individual terms you have agreed with the customer.
After gathering all the billing information you need to charge a customer, you will prepare an invoice. If you are using manual processes, you can draft a paper invoice.
You may also use a computer program that you will feed the necessary billing information and prompt to generate the invoice. While these programs save you time, they don’t automate the billing process.
A standard invoice itemises the goods and services you are charged for. It also specifies the prices or rates you are using, the tax to be paid, discounts extended, the total amount to be paid, and the terms determining how and when the invoice should be paid.
Depending on your systems, the invoice may need to be reviewed for accuracy and approved by someone in authority.
The approved invoice will need to be delivered to the customer. Again, how this is done differs between companies, but it must ensure the customer gets a copy of the invoice.
Invoices can be delivered electronically (via email), through the mail, or in person by having someone hand over the invoice at the customer’s place of business. How ever way you deliver an invoice, you must get confirmation from the customer that they have received the invoice.
Upon receipt of the invoice, the customer should hopefully settle it immediately. If they do, you will collect payment, record it in your accounting system, and look forward to doing business with them again.
Realistically, though, not all your customers will pay their invoices on time:
Often, invoices are not settled on time, usually because the customer is struggling with cash flow issues. You have to chase and follow up with these customers until the invoices are paid.
This is the most demanding part of the billing process. It’s frustrating when customers don’t pay on time. Some customers duck and dive to delay payment as long as they can.
If you don’t follow up on unpaid invoices, some customers will not be moved to pay. It’s important to keep sending them reminders until they pay.
There are many ways of billing customers. Some businesses use paper invoices, while others use electronic invoices. Some businesses bill customers once every month, while others have weekly and even daily billing cycles.
But however complex your billing process is and what billing cycle you follow, it is vital to get it right. Your business’s health and future depends on it.
Use the following tips to streamline the billing process and ensure your invoices get paid on time:
While you want to include every important detail on your invoices, ensure they are easy to understand. Simplify your payment terms to make them easy to understand, too.
Use language the customer understands so that nothing is lost in translation. This helps prevent confusion and disputes, improves transparency, cultivates customer trust, and ensures invoices are paid on time.
Include only the elements that are essential for billing. The invoice is not the place for advertising your upcoming promotions and new products. Bloated invoices distract from the purpose of the invoice and may obscure critical information, like the invoice total and due date.
The earlier you send invoices, the sooner you can get paid. You may ask why anyone would delay sending the invoice.
It’s usually not intentional. Manual billing systems, for example, leave you with so much to do that you can fail to send the invoices on time.
Manual billing also raises the incidence of human errors that, if picked up before the invoice is sent, mean you have to spend more time correcting the mistakes.
Do you collect customer payments online? It’s high time that you do that. Not because it expands your addressable market but because it opens up other, more convenient ways for customers to pay for their orders.
With the Intasend payment gateway, for example, customers can choose between four payment methods. They can use their M-Pesa mobile money wallet, Visa debit cards, Mastercard debit cards, or Bitcoin digital wallets.
If a customer’s preferred payment method fails, they can use another that is available or has sufficient funds. This helps to prevent loss of sales through cart abandonment.
By following the tips we have discussed, you can ensure that your billing process is efficient and effective. But there’s possibly one tip that solves most billing challenges:
According to a joint survey by PYMNTS and Plastiq, 45% of small to mid-sized businesses cited manual invoice review as a constant challenge they face when making payments.
As a supplier to these businesses, that means delayed payments for you. That delay doubles if you, too, use a manual billing process. Automation is the solution for this.
Automation digitises your entire billing process to remove the need for manual input or intervention. It uses software to automatically generate and send invoices, collect payments, and follow up on unpaid invoices according to pre-set criteria.
Automation streamlines the billing process by enabling speedy and simultaneous completion of tasks. Tasks that need several people and take time can be completed in seconds without human effort.
By automating the billing process, you also significantly reduce the potential for errors, promoting transparency and boosting customer trust.
Automation will also give you visibility over your cash flow, telling you at a glance what payments are due, those that have been completed, and how much you are owed in unpaid or delayed payments.
An automated billing system brings order to your billing process and helps you get paid faster. That said, you must choose the right automated billing system for your business. You must choose a robust billing software that grows with your company and lets you customise your invoice and payment terms according to yours and your customers’ needs.
Intasend’s automated billing and subscription management software is perfect for businesses that want to move to a recurring billing system or those that are pivoting to a subscription business model.
These models automate billing and customer payments, meaning you only ask for the customer’s authorisation once. All subsequent recurring payments are processed automatically. This guarantees more predictable revenue, boosts cash flow, and enhances the customer experience.