Going Cash-Free at your Firm: How (And Why) to Do It
Is there anything as relaxing as being on vacation, enjoying a fantastic dinner, finishing it off with the perfect cr├¿me brulee, and then – just walking away?
No need to wait for the check, no need to rummage through your bag for the right credit card or worry about whether you have enough cash to tip the waiter. You just know the bill’s taken care of, and it feels great.
When you’re at a fancy all-inclusive resort, your meals, your entertainment and your beverages certainly aren’t free. You definitely paid upfront for those fluffy towels folded like swans on your beds.
However, once you’ve covered the bill, the expense is out of sight and out of mind, giving you the freedom to enjoy your trip. You’re travelling cash-free and it feels great.
Wouldn’t it be nice if business was that easy? Imagine avoiding those awkward calls to gently remind your clients that you’re waiting, still waiting, to receive the funds they owe you for services rendered?
When it comes to the cash-free experience as a firm, there’s a little more involved in making the process flow smoothly. But the benefits can far outweigh the initial work needed to set up a cash-free system.
The headaches and hassles of cash payments
For the purposes of creating a cash-free firm, cash also comprises payments through paper checks, which can eat up a lot of additional time and money in the processing process. If you’re considering going cash free, you could reduce or eliminate a number of burdens for yourself and your staff, including:
Managing high overhead costs
Your firm costs money to run, just to keep the lights on and keep business moving. When you’re trying to keep cash flowing in a timely manner, and handling an invoicing system, you’re adding more overhead through those processes alone.
When you’re handling all accounts receivable functions in-house and through traditional methods, many additional expenses can accumulate. As an example, check processing alone can cost your firm way more than you might think..
Keeping up with time-consuming processes
Tedious, manual steps can affect your cash flow if you don’t manage them properly. If you’re handling cash payments, you also have to build out a receivables system, manage customer data, manually apply payments and numerous other steps needed to maintain financial stability.
Something as small as keeping client contact information up to date can have an impact on your client payments. With the velocity at which team members can change in different companies, something as simple as having a wrong email address or contact point for client invoices can mean a delay in getting payment in a timely manner.
Waiting for slow invoice payments
According to the Wall Street Journal, the 1,000 largest US public companies have increased payment delays to 56.7 days. Postponing payments makes sense from the client side because it frees up working capital they need for other business operations.
Clients may be prone to think your firm is more flush than it is and that you will decide to take delays in stride because you want to keep their business. However, when the burden is shifted to your firm, it can affect your ability to maintain proper staffing levels, add impactful technology resources, conduct continuing business development, and keep your own working capital in order.
Dealing with it when it gets ugly
It’s not easy to have to talk to a client about their late payments, especially if you want to continue the relationship. Hounding clients for collection on an invoice can be embarrassing and create friction on both sides.
If you have to make the calls or follow-ups yourself, that puts you in a sticky position as a target for their resentment. And, if you have to allocate additional working hours for a staff member to serve as your collections agent, that’s another blow to your overall revenue.
If the situation progresses even further, you could be forced to take an even greater loss by spending more to outsource to a collection agency, hire an attorney or write off the account altogether.
Taking on debt if clients don’t meet their obligations
You depend on timely checks from your clients in order to cover your own obligations – payments to your own creditors, payroll for your employees, etc. If you’re unable to collect client receivables when they’re due, you’ll risk your reputation and your good credit rating because you won’t be able to make your payments on time either.
Working with a bank to take on debt if your clients don’t pay can be a time-consuming and frustrating option. You end up paying on both ends: interest payments to the financier as well as overhead costs to continue trying to recoup money from clients. And, financing debt in this fashion means you may be tying up a portion of your credit or collateral you could otherwise use for business improvements.
Switching to a cash-free system
While it may not be the best idea to tell your clients that you flat-out refuse to take their money, or their paper checks, there are plenty of options available to make cash-free payments easy enough and convenient enough to prompt clients to switch (and maybe even to think it’s their own great idea).
Automating invoice processing
Automated systems make it easier to contact a client multiple times without them taking it personally. And, if you use a technology-based system, you can easily offer your clients multiple payment methods, including the option to set up a recurring payment.
Even if they don’t schedule payments automatically, providing multiple, on-the-dot options like same-day ACH or PayPal, means there’s less of an opportunity for your invoice to be pushed aside, buried in a pile of papers, or to get lost in the shuffle between your business partner and their finance department.
While this process is beneficial to your firm, you can also sell it as a benefit to the client. Companies that pay bills with handwritten checks typically spend around 10 hours a month handling bill payments.
Even sending invoices by email instead of mailing can help you and your clients be more efficient. When you give the opportunity to make these processes less time-consuming, you’re actually saving your clients – and your own firm – money.
Offering a payment portal
Many small business owners handle multiple aspects of their business themselves, even down to paying the bills.
By the time they’ve finished serving customers and handling operational tasks, it may be well beyond normal working business hours. Sorting through mail to find an invoice can seem like an easy task to push forward to another day, and calling to process a payment isn’t an option.
Setting up an online payment portal can make it easier for clients to choose to make a payment on their own time. Linking to the portal in your reminder emails can provide that gentle nudge needed to get the payment process started.
And, offering multiple payment methods, like ACH, credit card or a fee financing service, can make it easier to ensure your client pays on their time and on their terms.
Maintaining a card on file
Ask your clients up front for a credit card that can be billed each month. By automating this process for them, you are positioning yourself as an advocate working to help them avoid late or missed payments.
With their card information on file, it’s out of sight, out of mind for the client, but you still get your funds in a timely manner each month.
A couple of caveats: If the client’s card limit doesn’t align with their regular payments, you could end up doing some additional legwork again if a transaction is declined. And, credit card processing comes with an additional merchant fee, which can eat away at your profit margin.
Making fee financing an option
Instead of waiting for a client to pay in full in order to receive your revenue, you can work with a fee financing partner and get your money upfront. When you use a fee financing service, the fee financer will loan your clients the funds to pay you immediately– freeing up your clients’ capital and allowing them to pay on their own schedule without delaying payment made to your firm. ┬á
The fee financer is then responsible for managing the payment process from there. Instead of having someone at your firm spend time monitoring when payments come in, the client’s payments come in by automatic monthly ACH debits, removing that entire burden from your firm’s shoulders.
Fee financing is different from a loan that is secured from a bank because it doesn’t require you to tie up collateral or inflate your debt ratio, which then leaves you with additional flexibility if you need a loan for other business purposes in the future.
Fee financing is also different from a typical loan you might provide a client because it doesn’t tie up capital on your side. Instead, it releases it, making your receivables available sooner than if you were waiting for clients to fully complete payments to you.
When it comes to an all-inclusive resort, enjoying a cash-free vacation is the way to free your mind from additional stress and focus on your purpose – enjoying new experiences and relaxing. When it comes to a cash-free business model, using these tactics also allows you to hone your focus.
Going cash free can allow you to move from being concerned about how to collect money for work you’ve already done, to focusing on how to make money, improve your business, and plan for even greater success in the future.