The fundamentals of business are very simple. The main reason businesses go broke is that they run out of money, and one of the biggest contributing factor is the value of their unpaid invoices.
The sales process always starts with the very best of intentions, often a technical conversation between two people about a particular problem and how the supplier might solve it. In the euphoria of the early stage of the relationship, the boring details, such as invoicing and payment are glossed over, something to be discussed later.
When they are finally called in, bookkeepers and accountants always despair of the unstructured mess that they are asked to sort out under impossible time pressure. In the background there is a bank manager rapidly running out of patience, while at the customer end there is a vague indifference to the problem, especially if the original person who made the original, verbal promises on payment has moved on.
In retrospect, everyone should have spent more time writing everything down and clear payment terms should have been agreed in advance. Every first-time entrepreneur needs to apply the same discipline to their invoicing, as they will have to do in their project management and quality assurance; this is not something they can afford to delegate to someone else later.
There are many accounting packages that include invoicing tools, but most products are designed for accountants, so are too complex and unwieldy for a sole trader or small business. Fortunately, there is a simple, cloud-based solution for invoicing, designed specifically for small businesses: Clear Invoices.
The company is run by Peter Whent, a former army officer and computer industry veteran with many years’ expertise in electronic document distribution, starting with fax broadcasting. He was involved in several start-ups, acquisitions and management buy-outs, finally approaching private equity companies to find an opportunity of his own.
He eventually found a company that provided an end-to-end e-commerce platform which was trying to be all things to all people, with a CEO looking to make an exit. It is always difficult to find oneself parachuted into a hostile environment, but Whent’s army background had prepared him for the difficult task of getting people to do what is required for survival by persuasion rather than coercion.
Whent decided to focus on invoicing, which like all processes has a simple set of rules. He discovered that, contrary to most entrepreneurs’ assertions about intractable and unreasonable purchasing departments, most big companies would pay on time if their purchasing systems had all the information they need. He describes this as producing ‘process-friendly’ invoices.
Clear enables the user to generate professional-looking invoices and then automates the payment process. It provides automatic notification of outstanding invoices and even chases customers who do not pay on time. By invoicing in this way, Whent’s customers are typically paid fourteen days earlier than those who are using manual systems.
Clear is cloud-based, so everything is automatically backed-up and VAT inputs can be generated at the touch of a button. Best of all, it is completely free to small businesses. Clear make their money from the larger companies who also use it to streamline their own processes and save them money.
Not all the rules are designed to favour the larger companies. Whent explains that it is a little known and often-ignored fact that every company is entitled to charge interest of 8 per cent over base rate for overdue invoices. All you need to do is invoice correctly as soon as the order is placed, and then to put in an automated system to chase your payments for you.
Clear Invoices can be found at http://www.clearinvoices.com
Originally published in The Financial Times. Copyright ©Mike Southon 2011. All Rights Reserved. Not to be reproduced without permission in writing. Mike Southon is the co-author of The Beermat Entrepreneur and a business speaker.