Of course, you know that your business sells products or services in order to generate revenue. And you’ll know that revenue can’t be turned into cash until a few things have happened:
- Your business creates an invoice
- The customer receives the invoice
- The customer approves the invoice and makes payment.
Therefore, the purpose of the billing process is to facilitate payment. But the problem you face is the time that it takes to get through the billing process. You might not think it’s a problem for you, but every single day adds impact to your business.
Let’s look at an example where it takes three days to generate an invoice.
Let’s also say that this business generates $400,000 in annual revenue.
That’s just over $1,000 in revenue per day.
Therefore, for every day that an invoice is not completed and sent to the customer, this business must invest an additional $1,000 in receivables.
If you look at it the other way, for every day a company can reduce the time required to actually generate and send an invoice they will receive a one-time cash flow of $1,000.
Financial Impact Calculator
Work out your financial impact – enter your annual revenue and see the impact that a day has on how much you have invested in receivables.
The invoicing function is a critical link in the order-to-cash cycle. How can you improve it? At a minimum, you should
- monitor and reduce the time required to generate a typical invoice, and
- monitor and reduce invoice defects (format, pricing, terms, etc.).
Speed up your invoicing process
WorkflowMax recently wrote a helpful post with 10 tips on how to reduce the time required to generate an invoice which you can read here. It’s highly likely invoicing isn’t your favourite activity, so making it a faster process will not only improve your order-to-cash cycle, but give you more time to do other things.
Get your invoice right
We’ve researched why people pay (or more importantly why they don’t pay), and discovered that 28% of people said that they didn’t pay their bills because they weren’t correct. That many people receiving incorrect invoices isn’t acceptable, and it doesn’t help you get paid any faster. If you aren’t billing people correctly, they have very little motivation to chase you down and tell you what’s wrong; given the choice to pay or not to pay, people want to hang onto their money.
Fresh receivables and better cash flow
Wine connoisseurs would agree that there is nothing better than a fine wine that’s been aged to perfection. It’s not just gathering dust in the cellar, it’s maturing to create something that your palate will appreciate. The same goes for cheese – in the right conditions, the process gives it a distinct flavour that can only improve with time.
Taking time to develop or grow is beneficial for quite a few things. Whether it be wine, cheese, your fitness level, a new garden; they should get better as another month gets ripped off the calendar.
It’s not the case for everything though. There are some things that don’t improve with time. In fact, they become more of a problem as the days (or months) go by and can hinder you and your business.
You might like fine wine and good cheese, but it’s best to think of your receivables more like a loaf of bread. The faster you get through it the better!