Accounting, invoicing and tracking payments are major concerns for SMEs, whose cash flow management and financial health greatly benefit from putting the right systems in place. We examine the factors to consider when choosing accounting software, as well as the best practices to implement to keep on top of payments and invoices.
Accounting processes and cash flow management are not what they once were. Digital transformation and practical innovations have meant the task of tracking payments and issuing invoices has been largely digitised for many small businesses, with all the convenience this brings.
However, while digitalisation means small and medium-sized enterprises (SMEs) can handle their inflows and outflows with greater ease, this is no excuse for complacency. Staying on top of payments and invoices is vital to the success of any business, as it helps ensure healthy cash flow and improved financial forecasting. With modern accounting programs and payment tracking capabilities, businesses can benefit from greater visibility than ever before, which can improve everything from operational efficiency to supplier relations.
But when it comes to choosing the right means of tracking payments and processing cash flow, some businesses find it difficult to identify the service provider most suited to their needs. We take a look at the criteria to keep in mind when choosing an accounting solution, as well as the best practices to implement to ensure sensible cash flow management, oversight and invoice tracking.
Payments, invoicing and accounting today
While electronic payments are now considered the norm, many SMEs continue to transact through more traditional means. For tech, or tech-adjacent, companies, making cheque-based payments or submitting paper invoices seems decidedly outdated. For some, however, they remain commonplace, with varying degrees of prevalence from country to country. While France is to become yet another EU nation to totally phase out B2B paper invoicing by 2025, it remains ubiquitous in some parts of the world. Paper cheques also maintain a considerable presence in some territories, such as the United States, where as many as 42% of B2B payments were made by cheque in 2019.
For incoming client payments, cheque-based transactions traditionally consist of issuing an invoice, then waiting for the client’s cheque to clear, with little to no visibility along the way. In the longest cases, cheques don’t even clear before the subsequent accounting period, which can complicate reconciliation and lead to discrepancies. By contrast, the convenient nature of electronic payments is a major advantage for all stakeholders and, despite asymmetrical lag in the e-payments and e-invoicing landscape, digitalisation continues. In fact, this phenomenon has only intensified with the Covid-19 pandemic and its after-effects.
Contemporary accounting programs have also been shaped by digital transformation. As a business grows, cash flow management becomes increasingly complex and it can be difficult to keep track. Catering to this need for simplification, a multitude of user-friendly accounting platforms now vie for business owners’ attention, promising to greatly facilitate their payment operations and bookkeeping efforts through features like:
- Automated recurring invoices.
- Uniform e-invoicing templates.
- Notifications for late client payments.
- Profit and loss report generation.
These are just some of the practicalities that have made contemporary accounting solutions an essential asset for even the smallest businesses. With a wealth of options to choose from, however, just what should SMEs look out for when choosing the one for them?
How to choose the best accounting software
While automating certain processes reduces workflow strain for those handling accounts, tracking invoices and payments still requires steadfast attention and laser-sharp accuracy. Of course, not all platforms and services are created equally, with some offering more functionalities than others. This leaves business owners trying to figure out which service or platform to opt for, in accordance with their own business’s requirements.
Broadly speaking, there are a number of characteristics to keep in mind when choosing accounting software, though these largely depend on the size of the business and the budget allocated.
Business owners should ask themselves the following questions when compiling a shortlist:
1. Is it cloud-based?
- The accounting software chosen should be remotely accessible.
- Using software downloaded and stored on a desktop is impractical, restrictive and limits user-friendliness.
- Recent developments have highlighted the need to access important systems remotely and at all times. Accounting is no exception to this rule.
2. Is it multi-user accessible?
- Most accounting solutions today offer the possibility of allowing multiple-user access.
- In larger businesses, it is useful to grant access to employees outside the accounts department, giving them the responsibility of filing their own expenses and submitting invoices.
- This frees up bandwidth for those in accounts, enabling them to focus on more pressing matters.
- Configuring such access is vital, however. Not all users should have the same rights, as some information is sensitive and should remain guarded.
3. Does the pricing structure suit your business needs?
- Most contemporary accounting platforms offer a tiered pricing structure, with different plans and features, from “basic” and “intermediary” to “premium” and “advanced”. It is important to evaluate the plan that best suits your business needs.
- Larger companies are likely to need more extensive plans, but they should closely examine the features that come with the extra spend. If there are excessive restrictions on multi-user access with the basic plan, for example, progressing to the tier above may be advisable.
4. What features does it offer?
- The number of features offered and their practical applications for your business are crucial considerations. Each feature’s real-world pay-off should be justified.
- Consider the following:
• Does the platform automatically generate recurring invoices?
• Does it seamlessly categorise expenses?
• Can it generate profit and loss reports with the integrated data?
- These are just some factors to take into account.
5. Just how secure is it?
- Storing sensitive financial data requires vigilance.
- Businesses should examine the kinds of firewalls and encryption the service uses.
- A good accounting platform will make this information readily available.
6. Is it cost-effective?
- Cost-effective is not a matter of cheap or expensive.
- When choosing an accounting program, businesses must weigh up the features offered and consider whether they will provide genuine, daily operational benefit.
- Do the different functionalities equate to genuine time – and ultimately, cost – savings? Does the increased efficiency offer a return on investment?
Did you know?According to a 2018 survey conducted by American ratings and review platform Clutch.co, 25% of US small businesses still record their finances on paper, as opposed to via computer.
Best practices for payments and invoicing
Once you have chosen the software that’s right for your business and become accustomed to its various functionalities, day-to-day payment operations will become simpler. That said, it is worth implementing a series of best practices to be adhered to by accounting staff, or indeed anyone who engages in accounting or invoice processing within the business.
For incoming payments:
1. Follow up on late client payments
- Though your chosen accounting platform may send automatic reminders, or even emails, when a payment is late, following up directly is recommended if you wish to ensure a timely resolution and maintain good relations.
- If you are notified that a client payment is late, make a courtesy phone call to investigate why it hasn’t been made or processed. In most cases, there will be a logical explanation, such as a simple omission on the client’s part. In these instances, they will appreciate the reminder.
- Follow up with an email, reattaching the invoice so they don’t have to trawl through old messages.
2. Ensure all details are clear and accurate
- When generating invoices through your accounting program, ensure that you fill out all relevant fields. The subject of the invoice should also be evident for both parties at a glance.
- Make sure payment details are kept up-to-date and clearly signposted, making the necessary amendments for automatically generated recurring invoices if your details have changed.
- Any credible accounting platform will automatically attribute the correct number to each new invoice, but verify that the payment due date is plainly visible. Clarity is essential to avoid delays.
3. Run reports, observe patterns, rethink financial strategies
- Many accounting programs can generate profit and loss reports using the data integrated. This compares paid and unpaid invoices, showing you a net profit total that allows you to evaluate the state of your cash flow.
- Over time, patterns may emerge, enabling you too see which clients are serial late payers. This may call for a change in payment terms.
- In the medium term, reports and analytics will help you perform better cash flow forecasting and refine future financial strategies.
For outgoing payments:
1. Document and categorise
- Leverage your accounting software to gain a granular overview of the payments you owe and keep track of your outgoing payments on a separate spreadsheet or built-in equivalent.
- With the help of an intuitive dashboard, you can label by payment type, indicate payments made through your business’s current account or credit card, highlight due dates and underline payment processing times.
- The more detailed the overview, the greater visibility you will have over regular costs and expenses.
2. Use an invoice management system
- This may come as part of your chosen accounting program or it may be separate. It allows businesses to better manage invoices from suppliers and vendors.
- When received, each invoice is matched to the corresponding purchase order and, unless flagged for some reason, they are automatically paid.
- Process automation and streamlining of this kind improves operational efficiency, while the increased analytic capabilities provided offer useful insights for management.
3. Choose a PSP that emphasises visibility
- With some payment service providers (PSPs), visibility over the payments you make can be lacking. Processing by intermediary banks may mean electronic payments take longer than anticipated, with little visibility over the payment journey.
- Some PSPs offer greater transparency by indicating real-time payment statuses, therefore allowing businesses to clearly communicate with creditors and suppliers over any potential logjams.
Did you know?In March 2018, SWIFT (the global network facilitating transaction-related information exchange) extended its gpi Tracker. This mechanism allows all affiliated banks and PSPs to provide real-time end-to-end payment instruction information to customers, though not all have chosen to leverage these capabilities.
When it comes to accounting processes and invoicing, SMEs today cannot afford to be left behind. Failing to capitalise on the benefits of digitalisation is a grave error. Contemporary accounting software helps businesses alleviate workflow strain, keep on top of cash flow and automate tedious, repetitive tasks, thus increasing operational efficiency.
While most programs include features like late payment notifications and e-invoicing templates, businesses need to shop around, study the range of capabilities on offer and identify the solution most beneficial to them. Over-reliance on automation is not recommended either, however, as businesses need to proactively implement best practices. This will ensure accurate bookkeeping, consistent invoice tracking and healthy cash flow management overall.
With contemporary innovations, keeping on top of payments is easier than ever before. Beyond specialised accounting platforms and invoice tracking tools, some PSPs are also championing greater visibility, enabling their corporate clients to track payment statuses in real time, thereby equipping them with valuable information. The trusted ecosystem this creates for businesses and their beneficiaries is something to seriously consider when selecting a payments partner.