We use cookies to make your experience better. By using xero.com, you accept our cookie notice terms.

Brought to you by

The number one way to improve cash flow for small business clients

Posted 4 years ago in Advisors by Briar Weaver
Posted by Briar Weaver

Accountants and bookkeepers know that for many businesses, cash flow is a key challenge.

For small businesses, particularly those just starting out, having good cash flow means employees and bills get paid, and owners are able to plan for the future. The opposite is also true; poor cash flow means living invoice-to-invoice, chasing debtors, no ability to plan, and insecurity for employees and creditors.

“We often use the term ‘cash is king’ – and my experience as a bookkeeper, as well as a small business owner, affirms this,” says Melanie Morris, Head of Bookkeeping for New Zealand at Xero. “If the cash flow is tight, then all aspects of the business are under pressure, from purchasing goods, to being able to sell to your clients, to paying the staff and maintaining compliance. If a business is under financial stress, the owner is spending valuable time worrying about cash flow rather than working on their business.”

Help your clients get paid faster

Of course, one of the best ways to improve cash flow for small businesses is for them to get paid faster. So, as an accountant or bookkeeper, how can you help your clients achieve this?

Xero can help. With over a million small businesses on Xero, we’re able to look closely at a vast trove of data on cash flow. We’ve done a deep dive, and what we’ve found is definitive. Using payment services – such as PayPal and Stripe – gets invoices paid faster than other kinds of invoicing.

“We’re all busy, so if a client can pay online when they receive the invoice, they don’t have to remember to pay later,” says Sue Pak, Head of Accounting for Xero New Zealand. “The sooner you receive the money (from your client), the sooner that money is working for your business.”

Steph Hinds from Growthwise, in Newcastle, Australia, says payment services and gateways are incredibly helpful for customers looking to get paid faster and improve cash flow.

“We try eliminate pain points for our clients. Once we have their invoicing [sorted], how do we get them paid quicker? We’ve got to make it easier for people to take credit cards, and that often will result in a PayPal or Stripe conversation,” Steph says.

“Then we roll it out, and we show people that they’re getting paid quicker, which they love.”

Speedier payment across all kinds of business, all over the world

The trend is consistent across different business sizes and industries, and the difference is truly remarkable. In Australia and New Zealand, PayPal and Stripe invoices get paid up to 10 days faster, on average, than with standard invoicing. In the UK and the US the difference is even more pronounced: it’s approximately 19 days faster, on average.

cash flow

The numbers are so strong that it’s our number one recommendation for accountants and bookkeepers looking to improve client cash flow: get your clients using payment services.

Help your clients improve their customer service

It’s not just cash flow that improves. Your clients’ customers benefit as well. Today, nearly everyone is used to online shopping and paying for goods and services with a few clicks. Why should invoices be any different? For many customers, using PayPal or Stripe is far more convenient than remembering to transfer funds from their bank – which is one of the big reasons why these invoices tend to get paid faster.

“One of the best things you can do for your clients is to activate a payment gateway in Xero,” says Melanie. “Debtors can view and pay the invoice online with a touch of a button, and the invoice payment is automatically applied in Xero ready for reconciliation the following day.”

Not only does it make it easier for small business customers to make the payment, it also allows them to control their own cashflow – by taking advantage of the natural “float” that paying by credit card provides. It means the bill the customer is paying only impacts their cashflow when they pay off their credit card. It gives customers flexibility, while also getting you paid faster

Other criteria to take into account when calculating the benefit of using payment services include the fact that most small and medium businesses do not have the time or resources to chase unpaid invoices or use debt collection, which leaves cash flow languishing. There’s also an important compliance element – all over the world, compliance agencies are cracking down on uncharged invoices. If clients find it easier, they’re more likely to pay invoices sooner, and invoices are likewise less likely to stay unpaid or uncharged.

Don’t fear the fees

While it’s true that using payment services often involve fees that standard invoicing doesn’t, our accounting and bookkeeping experts say that this is nearly always offset by the benefits of immediately improved cash flow and a vastly better customer experience.

Steph Hinds says the benefits of getting paid faster hugely outweigh the cost of fees. “Accountants are really good at just looking at the cost of something, not at the real cost of something,” she says.

“I hear accountants go, ‘Ah, Stripe’s 1.75 percent plus 30 cents per transaction, therefore that’s too expensive for my client – they can just get a direct deposit.’ I’m like, well, chasing debtors takes how long?”

What’s more, both PayPal and Stripe are entirely free to set up. There are no flat fees or recurring payments – your clients only incur fees for transactions that are successfully paid through the service. In other words, if your clients’ customers choose not to pay with these online options, it doesn’t cost them.

It’s easy for advisors to calculate the effects of fees offset against these factors, and it’s a great conversation to have with your clients. “If one of your challenges is cash flow, and our data shows you’re more likely to get paid faster by connecting payment services, surely it’s worth trying,” says Sue Pak.

It’s also really simple to get your clients set up with payment services like Stripe or PayPal in Xero. We’ve put together a page on how to get started – have a look, and get ready to talk to clients about improving their cash flow today.

The Numbers

Days to pay for invoices paid for “standard” invoices vs those paid with payment services (only PayPal + Stripe) Source: Xero.

Country Days to pay – Standard Invoice Days to pay – Payment Service (PayPal & Stripe)
Australia 32.49 21.92
New Zealand 30.48 22.88
United Kingdom 38.05 19.26
United States 39.23 18.87

Tell us what you think!

If you’re an accountant or bookkeeper who’s using payment gateways yourself or with your clients, we want to know about it! Let us know what you think in the comments below.


Hardik porwal
January 24, 2018 at 2.08 am

Outstanding blog on improving cash flow of SMB and very informative at the same time.This blog will be very helpful for the small scale and medium scale business which are faceing the cash flow problems.

Vikki Carlucci
January 24, 2018 at 5.01 pm

Do the cient’s customer’s need to have a credit card to pay with Stripe or Paypal? My concern would be that a lot of them might not have a business credit/debit card to use …

Briar Weaver in reply to Vikki Carlucci
January 30, 2018 at 3.47 pm

A payer does not need a credit card to pay through PayPal. They just need a PayPal account.
To pay through Stripe, the payer needs a credit card or a debit card with online payment functionality, such as a Visa Debit card. However, we are building the ability to accept payment into Stripe via bank transfer (known as Stripe ACH bank transfer, and available only in the US). This is going live in February.

Debbie Ogier
February 14, 2018 at 1.58 pm

The integration and reporting has a way to go with both these providers. And there needs to be an easier option to add stripe/paypal charges to the invoice for those businesses that feel the customers should pay the costs.

Briar Weaver in reply to Debbie Ogier
February 15, 2018 at 8.31 am

Thanks for your comment and feedback. Xero offers the ability to pass processing fees on to customers when businesses are set up with Stripe. Surcharging can be set up from the Payment Services page within the Stripe pop up. Please see our Stripe surcharging help page for further information

Leave a reply

Your email address will not be published.