It’s no secret that businesses face a challenging environment right now. Late payments remain a major issue, and many businesses report feeling unsure of their financial position due to slow or insufficient data. And beyond just harming businesses, these stresses can spill over into the personal lives of owners and employees, causing additional harm in an already tough time.
GoCardless brought experts together to offer business owners some expert guidance on all things pricing and invoicing. Rachel Astall, Head of Global SMB Platform Partnerships at GoCardless and I spoke with fellow panelists:
- Philip King, the UK’s Small Business Commissioner; and
- James Ashford, Founder of GoProposal.
The discussion centred on the two key stages of the order-to-cash cycle, and we’ve gathered the key insights here to save you time.
All about pricing
Pricing correctly is the key to profitability and longevity. According to James, there are three ways that a lot of businesses determine pricing: cost-plus – by adding a specific mark-up to a product’s unit cost, competition-based, and guessing using the ‘finger in the air’ approach. The third option certainly isn’t recommended, but there are some redeeming features to the other two approaches. However, when a storm comes along – such as the coronavirus pandemic – any inefficiency in pricing can quickly become costly. James explained that “we live in a much more complex world now, clients have far more sophisticated needs and we need to reflect that sophistication in the way that we price our services.”
The rest of the panel advised SMBs to consider a new option – pricing via a system. This involves determining prices using a fixed process. One benefit to this approach is that it’s transparent, meaning that every buyer knows what they are paying and why, leaving them confident that it’s a fair transaction. Businesses are awash with data these days, with multiple tools that can provide industry benchmarks.
I advise SMB leaders to speak to one or two of your trusted and loyal customers, you’ll find that they will be more honest with you than you expect. James emphasised the need to provide value through experience, rather than just the numbers. Phillip added that “people are fundamental to everything we do in business. Therefore, you need to talk to them and bring them with you so that what you put in place is being used effectively and is recognised as being effective.”
Invoicing is about getting paid as fast as possible and keeping an accurate record for your business. Businesses have typically relied on paper or letter invoicing (which neither makes it easy to get paid nor updates your records) or desktop software (which may automatically generate records, but doesn’t incentivise quick payments).
Fortunately, more modern solutions exist to solve both problems. For sole traders and freelancers, there are plenty of apps that can take care of invoicing. Cloud accounting also makes it easy to take payments and creates detailed records that can be automatically filed in your system. On average, Xero online invoices are paid 14 days faster when a payment service like GoCardless is offered, and businesses that use Xero have a much better view of their financial position. The rest of the panel advised SMBs to consult with their advisor on the right invoicing system for them.
While technology can help with invoicing, there’s still a vital human element. Philip recommended communicating with clients to make it as easy as possible to pay you. Mark agreed that speed and taking responsibility are key. It’s important not to fixate on blaming clients for late payments, he added, and instead to channel that energy into solutions, systems and things that you can control.
Every business’s pricing solution is unique. The experts advise business owners to start by mapping out their business’s situation and their desired outcome, determining metrics to quantify success, and working with customers to determine the right system. As with any major change, internal buy-in is essential.
Beginning the recovery
For small businesses, the pandemic has provided an opportunity to adopt new policies and systems to make the business more streamlined. By starting with pricing and invoicing, two of the most fundamental functions of any business, SMB owners can ensure that their business returns stronger than ever.
For more insights, the full webinar is available now.
Visit our dedicated site for more resources, webinars and inspirational stories to help your business recover and rebuild.