18 minute read
GoCardless Xero & GoCardless
Xero & GoCardless: Putting an end to late payments
@GoCardless
Rachel Astall, Head of Global SMB Platform Partnerships,
GoCardless
Rachel works with global platforms that enable SMBs to better manage their business. This includes accountancy software such as Xero, alongside a host of invoicing and membership platforms. By improving the ecosystem of GoCardless’ bank debit solution, Rachel is working to ensure that small businesses can take the pain out of getting paid. Ultimately, so they can spend less time chasing payments and more time doing what they love.
Ben Johnson, Director of Financial Partnerships, Xero
Ben leads Xero’s engagement with global financial partners who enable the Xero team to build amazing products that help businesses understand their financial position, manage payments and access working capital.
W
hy does the issue of late payment exist at all?
Some view it as a question of psychology. Your customers might be busy, forgetful or at worst, selfish
The smarter way is to view it as a question of technology. Then can you solve the problem of late payments at its source - payments themselves.
I sat down with Xero’s Director of Global Financial Partnerships, Ben Johnson, to talk about how small businesses should make their payments solutions work better for them, and how Xero’s new integration with GoCardless benefits Xero users.
The number one reason small businesses fail
Ben doesn’t mince words when it comes to the biggest threat facing small businesses. “The number one reason small businesses fail is poor cash flow. To effectively manage cash flow, it’s critically important that small businesses have an efficient process in place to get paid.”
“The number one reason small businesses fail is poor cash flow.” process in place to get paid, the resulting late payment has a knock-on impact on your cash flow. Xero’s Small Business Insights in the UK show small businesses were paid on average 6.6 days late, as at March 2021. When you have staff and suppliers to pay, consistently getting paid this late creates problems.
So what’s the solution? You could view it as a problem of psychology and go down the communications route. This can be effective, but it doesn’t address the source of the problem - your customers can only pay late because you’re giving them the option to.
At the core of the late payments problem are the methods you use to collect payment. Manual bank transfer - the de facto default way many businesses collect payments - leaves you with zero control of getting paid on time, putting it entirely in the hands of your customers.
“Customers who use online invoice payment platforms like GoCardless get paid up to twice as fast as those who don’t.”
Addressing the source of late payments requires choosing the right payments platform. Ben explains that Xero’s data shows customers who use online invoice payment platforms like GoCardless get paid up to twice as fast as those who don’t.
“Using the right invoice payment solution can save time, and importantly get money into the business faster. It’s a really foundational part of improving cash flow. It’s also a very practical step that a business owner can take to improve the health of their business.”
The payment method that gives you back control
Direct Debit is a household name in the UK, Australia and New Zealand, but it’s often pigeonholed as a payment method for things like utility bills, magazine subscriptions, or gym memberships.
This is an unfortunately dated view that seems to hang around. Direct Debit and its equivalents around the world, such as ACH debit in the US, are the solution to the source of late payments for businesses of many more kinds.
Unlike manual bank transfers, Direct Debit payments don’t rely on your customer choosing to pay you - they are processed automatically.
This is why GoCardless is built on Direct Debit, enabling small businesses to automatically collect bank-to-bank payments from their customers on the due date. No more chasing unpaid bills or wondering when you’ll get paid. And you and your customers don’t need to lift a finger.
GoCardless enables you to collect payment directly from your customer’s bank account when it’s due. No more chasing unpaid bills.
Ben tells us, “We find that most businesses who use invoicing in Xero have customers that they invoice at least a few times a year. I think small businesses naturally focus on building long lasting relationships with their customers, as it’s much harder to acquire new customers than retain existing ones.”
Having a payment method that automatically collects on the due date means that you can focus on delivering a great service and not let late payments sabotage a longlasting client relationship.
Xero’s new integration with GoCardless
GoCardless and Xero have been working together for many years. The new product integration reflects this partnership growing to a new level.
“We felt recurring bank payments were such a key way Xero customers could improve their cash flow, that building GoCardless directly into the Xero workflow would help our customers get more value from using the product,” says Ben.
“We decided to create a new GoCardless integration and make it an embedded experience within Xero. We launched an early version of this in March, which allows new customers to create GoCardless accounts, send authorisation forms, and collect payments all within Xero.”
“We decided to create a new GoCardless integration and make it an embedded experience within Xero.”
If you started using GoCardless and Xero together prior to March 2021, you’re using the original GoCardless for Xero integration (previously called Direcli). This is an integration that GoCardless owns, and which will eventually be replaced with Xero’s new integration. GoCardless for Xero currently has some features that will be making their way into the new integration in the coming months. All GoCardless for Xero users will be contacted by GoCardless with more information nearer the time. Until then we hope you continue to enjoy using GoCardless for Xero. The new integration is the latest in a list of milestones Xero and GoCardless have achieved together. Including growing the GoCardless offering beyond the UK to Australia, New Zealand, the US, and Canada, and being honoured with several awards from Xero, including App Partner of the Year in both the UK and New Zealand.
Over the next 12 months you can expect to see more developments on GoCardless from Xero. As Ben reflects, “Our goal is to help small businesses get paid fast. We remain focussed on delivering deeply embedded payment experiences that make it easier for businesses to receive and manage payments in a way that suits their needs.”
How accountants and advisors can better serve small businesses
Accountants and bookkeepers are increasingly finding their roles transitioning into that of a business advisor, particularly within the app-centric Xero ecosystem.
Given the impact the right payment solutions can have on small businesses, and Xero’s large network of partners, we asked Ben his thoughts on this.
“I’d like to see both small businesses and advisors be more aware of the payment processes they have in place, and how well these serve them. We’ve seen that customers who take the time to digitise their invoicing
and payments see significant improvements in their payment times. We also know there are a lot of small businesses who have the opportunity to improve their processes.” There are a number of solutions to address the problem of bad cash flow; from forecasting apps to debt chasing and invoice factoring software.
Having visibility of your cash flow trajectory is useful, but payment apps are unique in giving you the control to change that trajectory. With a switch from manual bank transfers to Direct Debit, for instance, you can fix the issue of late payments at its source, rather than treating the symptoms with
1 Source: IDC, The Business Value of The GoCardless Platform for Recurring Payments, 2020
GoCardless: Made for recurring payments
Founded: 2011 Customers: 60,000 Located: London, Paris, Munich, Melbourne, San Francisco, and New York City
Who uses GoCardless?:
Professional services businesses (accountants, agencies, IT services, care services, consultants), membership services (clubs, gyms), and trades
Benefits for Xero users:
• End late payments
When your invoice is due, payment is automatically debited from your customer’s bank account.
Xero users get paid twice as fast using GoCardless.
• Lower-cost alternative to card payments
Bank-to-bank payments cut out the costs of card networks, making for a more cost efficient way to get paid. Plus, automation reduces the costs of chasing payment. GoCardless lowers the total cost to accept recurring payments by 56%1 .
• Popular with payers
When it comes to paying invoices, Direct Debit is the preferred alternative to manual bank transfers for businesses in the UK and
Australia. In the US, after credit cards, Direct Debit is the preferred way to pay invoices.
• Less bookkeeping
Payments are automatically reconciled against your Xero invoices, saving you hours on admin. As Ben goes on to say, “At Xero, we want to make this change as easy as possible for small businesses and their advisors, by building simple products that work well for their business. It’s another reason we decided to build a new GoCardless experience in Xero. It’s about reducing some of the complexity of using different apps to manage recurring bank payments.”
What’s next for Xero and GoCardless
Here at GoCardless, we’re beginning to roll out a new feature called Instant Bank Pay - a better way for you to collect one-off payments, powered by open banking. With manual bank transfer being slow and adminheavy, and card payments being expensive and failure-prone, open banking technology enables Instant Bank Pay to step in as a competitive replacement.
Adoption of open banking technology is certainly on the rise. In the UK, a recent survey from Ipsos MORI found that 50% of small businesses are already using open banking-enabled services, which includes payment services. Most of these businesses said they had adopted open banking since the start of the Covid-19 pandemic. We can only see this trend increasing further.
Ben shares our enthusiasm, “With Open Banking, software providers are creating great experiences for customers using their bank account, and I think we’re starting to see that come to life in the world of payments. It’s exciting to see what the future holds here.”
All we can say is watch this space!
FIND OUT MORE...
Find out more and get started at
gocardless.com
or head to the Xero Apps Marketplace
4 ways modern software can grow your business
See how QicWorks fills the market void by providing a simple, flexible ERP solution for engineering, construction and site installation businesses.
@qicworks
Karen Parker, Co-founder,
QicWorks
Prior to founding QicWorks, Karen worked in heavy industry for 15years & has extensive experience in project management, controls & business admin. She is passionate about delivering digital solutions that make life easier for businesses, reading thrillers & quoting 80’s movies back to her kids.
Every financial administrator knows
that managing company finances is imperative to business sustainability. Having a digital solution that offers the right flexibility to fit your business model is vital in providing operational insights, efficiencies and engagement. This has never been more apparent than now as businesses move from survive to strive mode – post pandemic.
Being able to offer engineering, building, construction or site installation businesses a simple, robust solution that has been built and tested with industry experience, ensures QicWorks innovation and usability can deliver sustained growth.
1) Finding the right solution
QicWorks transforms businesses by removing the need for multiple applications, spreadsheets or work arounds required to calculate profitability. We take the frustration out of complex rate structures caused by transient workers, or individual billing rates based on customer, site or project, not to mention allow our users to share their resources across their trading entities, all from the one account.
From the start QicWorks has been created to do what other job management applications cannot. QicWorks has been designed from the bottom up to ensure that more real time meaningful data is captured from the field. We use the latest in digital technologies to deliver large-scale ERP functionality, at a fraction of the cost.
2) Everyone Connected
Integrating QicWorks with Xero not only saves you time but removes data duplication and errors. With the click of a button your existing accounting data can be synced between both applications. QicWorks will not only push business documents and their attachments, but also sync payroll and leave data for reconciliation.
3) Utilise more components as you grow
As global economies start to bounce back, many businesses are looking to scale their operations. As part of this growth, they are looking for digital solutions that can also grow in line with their needs.
QicWorks is flexible in its delivery. Simply enter only the data you need or take advantage of all our features for complete business intelligence. Our core product provides users with everything they need to calculate accurate job costings, work in progress, forecasting, track invoices, schedule resources, collect and approve timekeeping.
QicWorks modular architecture also means businesses can activate additional modules such as Safety, Training, Customer Relations Management, Inventory or Digital Forms. Users then take advantage of single source data and watch as if flows across all aspects of their business.
4) Discover new opportunities!
With the support of the QicWorks team, you will certainly stand out from the crowd to become a leader in construction software. Together we can streamline your clients job management from estimate to accountant.
Join the QicWorks partner program and see how you can help your clients regain control and have more transparency to make the right decisions, so they and you can grow.
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Become a market leader by joining our partner program. Find out more at:
qicworks.com/partner.html
5
Elements of a Strong Credit Policy
Every business seeks to fulfil its growth objective by maintaining a healthy cash flow and building a strong relationship with its customers. While extending credit to customers can help businesses achieve these goals, it can prove detrimental to business longevity in the absence of a strong credit management policy.
@ezycollect
AJ Singh,CEO and Co-founder,
ezyCollect
AJ is the CEO and Co-founder of ezyCollect. He has a proven track record in start-ups, having successfully founded and sold two businesses in the last 10 years. His business acumen, combined with his passion for technology & innovation, led to the development of the ezyCollect AR automation solution that empowers small and medium enterprises to get paid faster, and enhance their cashflow.
Businesses need
an integrated understanding of customer risk profiles and their risk tolerance levels to ensure their credit management is effective. Without developing a thorough credit policy, businesses can face the risk of a cash flow crisis, not to mention reputational risk.
The key to mitigating credit risk is to draw up a carefully crafted credit policy that includes the five key elements:
1) Evaluate your risk tolerance
Evaluating whether your customers are trustworthy is a crucial part of the process. However, a credit check is just one aspect of the equation. When considering offering credit, you will also have to consider your risk appetite or tolerance – that is, how much risk you can take on overall and how much the credit offering contributes to the overall risk. In all cases, it is important to ensure your business balance sheet withstands losses of offering credit without the risk of insolvency.
An effective way to monitor your risk levels is by calculating the DSO or daily sales outstanding regularly to assess the health status of your accounts receivables. DSO is calculated by dividing accounts receivable by total credit sales and multiplying this by the number of days.
A low DSO indicates that you collect outstanding payments quickly after issuing your invoices. On the other hand, a high DSO can be a red flag and indicates there is a delay in the collection of outstanding dues. For businesses offering credit timeframes of 30 days, a DSO level of less than 45 needs to be the goal.
Another metric you can use to evaluate your risk tolerance relates to receivables turnover ratio. This measures how effectively your business collects outstanding receivables. To calculate this ratio, divide net credit sales by accounts receivable average. A high receivables turnover signals your business is effectively collecting receivables. It can also indicate a stringent lending policy that may be deterring quality customers. This ratio can also help you finetune your lending policy.
2) Clear terms and conditions
Before offering credit terms to customers, ensure that the terms and conditions of the credit are clearly worded. This can include details such as credit check process, need for banking and trade references, interest charges on late payment, and disclaimers among others.
Include the details of the time frame such as ‘40 days’, and the disincentives/penalties for delayed payment (interest charges) and/or any incentives you might offer for early payments. Ensure a standard format of a declaration form that the customer signs to indicate their understanding and acceptance of these terms.
List the actions that you will take for late payment or non-payment, including warning process, consequences (withholding or lowering credit), as well as the collections process such as litigation or debt collection agency.
Depending on the nature of the business and transaction, specific conditions may have to be added in addition to basic terms. These terms of trade have to be dated and signed by the customer to indicate their agreement and acknowledgement of the terms. The following details will also need to be included in the credit policy: • Price • Conditions and warranties of
purchase • Costs recoverable • Definition of ‘default’ • Limitation of liability • Administration fees • Security for payments • Under what terms the agreement terminates
3) Assess the creditworthiness of customers
Obtaining a credit report from credit agencies can give you the details you need to make an informed decision on extending credit. The report can provide data on: • How risky a customer is • The customer’s history concerning prompt or late payment • Recorded legal action if any of the customer • ASIC information on businesses and their directors
Credit testimonials or references can give you an idea of the debtor’s relationship with other creditors. Ensure you ask the right questions to creditors from your industry who best align with your business profile to derive the most value from credit testimonials.
Collect relevant information from customers such as their identification, address, contact details and their signature that confirms their acceptance of credit terms. Use the relevant business number such as ABN or ACN to check if the business is legitimate and is currently trading. Obtain credit references for the business and ensure you have comprehensive information on its partners and directors.
Conducting an accurate and comprehensive overall assessment of your customers is crucial before determining whether you can offer them credit. Once you obtain the list of references, you also need to call them to confirm whether the customer has a history of late payments or is not a credit risk. After establishing this, you can move on to the state of providing
4) Use a streamlined credit application
The credit application form captures information, such as: • The customer’s or the business’s full legal name • Type of entity or business structure such as partnership, sole trader, trust, company or government authority • Details of all the owners, directors and partners of the business • Business Registration Number -
ACN or ABN • Postal address and place of business • Email address • Telephone numbers during and after business hours
The credit application form is a vital document that helps you gather crucial information about your customers. The more information that the application form captures, the higher your chances of ensuring the payments happen on time.
Apart from giving you a clear picture of your debtor’s identity and place of business/address, the credit application form also helps you to: • assess the debtor’s ability to fulfil their financial obligations • obtain credit reports in accordance with the Privacy Act of 1988 • ensure the terms of trade are read and understood by the applicant
A recent trade survey shows that 80% of credit managers used the information that debtors provided in the credit application form to decide on credit policies. The other major sources of information for credit managers, as per this survey, were business credit reports, credit scores and ASIC information.
Upgrading your credit application process to state-of-the-art online systems is a great way of ensuring it is seamless, quick and accurate. This will help optimise your customer experience while minimising the risks of errors and delays associated with manual application processes.
5) Strengthen payment management and monitoring
After extending credit, adopt best practices of payment management and risk monitoring to ensure your risks of nonpayment or delayed payment are minimal.
Create a system to monitor invoicing, payment collection and overdue payments risk. Conduct a periodic risk assessment of your debtors in alignment with your credit policy and ensure an established process of collecting overdue payments. If your re-assessment and monitoring show the debtor’s risk rating has declined or there have been adverse events such as court ruling, follow the process of terminating the agreement with your debtor.
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Enhance your XERO by adding ezyCollect - our XERO clients reduce their overdue out standings by ~43% within 6 months after adding the ezyCollect app. Start Your Free Trial:
