How to get your invoices paid (and boost your cash flow!)
Debtor management software turns unpaid invoices into working capital in a cost-effective way.
- Many accounting firms have balances of hundreds of thousands of dollars owing from clients.
- Debtor management software can reduce debtor days by up to two-thirds.
- Debtor management offerings range from email reminders to full CRM systems, accounts receivable officers and debt collection services.
Overdue client invoices are endemic to accounting firms. There are stories of partners so unwilling to confront clients about bills owing that they transferred thousands of dollars of their own cash into the business to keep the peace with other partners.
At the heart of this issue is the rubbery nature of accounting fees. Clients typically have unrealistically low expectations of the effort required to complete a job. And sometimes, due to the number of factors at play, it is genuinely difficult to know how much a job is worth. An accountant’s knowledge in a specific area of tax, familiarity with the process from completing similar jobs, the state of the client’s books, and the priority placed on a job all play a part.
Add in levels of partner review and extended time for graduate accountants learning on the job, and a strict hourly rate can become difficult to justify. This leads to negotiations over invoices and write-offs.
Little wonder that many accounting firms have balances of hundreds of thousands of dollars owing from clients. The process of retrieving those fees, known as debtor management, is extremely important to a firm’s cash flow and balance sheet, particularly those who may have lost business during the pandemic. Debtor management is one of the best ways firms can turn old invoices into working capital.
Email reminders can bring in cash
Many of the advances in accounting software over the past 10 years have focused on improving the experience for the business owner. However, there has been a good amount of innovation for practices in debtor management, too.
The most basic form of debtor management is using automated reminders that prompt clients two days before an invoice is due and at set intervals after that date. Back in 2010, this service was supplied by third-party applications that connected to accounting software. These days, most accounting software has this functionality built in.
Xero added invoice reminders in 2015, which includes customising reminder messages for up to five emails per invoice. MYOB Essentials can send individual invoice reminders or unpaid invoice summaries for all open saved invoices. This includes invoices you haven’t yet printed or emailed; you can turn these reminders off.
Email reminders may seem a low-tech solution for recovering outstanding debts, but they get results.
“Email reminders may seem a low-tech solution for recovering outstanding debts, but it gets results.”
Firms using the UK-born Chaser app reduced debtor days by an average 16 days and saved 7.3 hours of work a week, the company says.
New Zealand-based Debtor Daddy, one of the first reminder services, has an online calculator that uses annual turnover and average debtor days to show how much extra cash you will have in hand.
These apps are more sophisticated than basic email reminders in accounting software. You can apply different chasing regimes for different customers, control the time and day reminders are sent, allow for invoice reminders to be grouped, and preview and approve outgoing emails.
Both apps have expanded into debt collection services, which you add to an overdue invoice with a couple of clicks. As an interim measure, Debtor Daddy also hires out accounts receivable specialists from US$299 a month (US$799 a month for an “AR Department”) who make calls to clients on your behalf.
One increasingly common feature is a dashboard for tracking the largest invoices and most egregious clients. EzyCollect turns this into a full-fledged CRM with the ability to segment customers for bulk communications (including postal mail and SMS) and detailed reporting. It also pulls in credit check data from data bureau Illion and analyses your debtor list to identify high-risk suspects.
Advantages of a suite solution
Two debtor management suites sit at the top of the ecosystem. They include features such as debtor funding, payment gateways, EFT and direct debit – as well as reminder emails and debtor tracking.
FeeSynergy has sold exclusively to accounting firms since 2007, when it added fee funding to Reckon APS invoices. It has deep workflow integrations in all the practice management suites, including MYOB, Reckon APS, Xero, Sage Handisoft and GreatSoft. Its banking products fully integrate with Westpac and it boasts a long list of customers.
Apxium is a more recent contender that has pushed debtor management into areas such as integrated engagement letters and proposals. Apxium Collect integrates with MYOB, Xero and Reckon APS. It also offers its debtor management solution to SMEs under the brand Partepay.
There are usually a number of reasons why a client isn’t paying, says Malcolm Ebb, co-founder and managing director of FeeSynergy. “Usually they want to pay, but they don’t have the cash flow to do that in the timeframe the firm wants. So they hold off until they get a reminder.”
The best way to encourage payment is to present as many options as possible – credit card, EFT, cheques, cash and financing. If payment isn’t forthcoming, Ebb recommends lawyers over debt collectors for substantial amounts because "debtors take more notice of a letter of demand from a lawyer than anyone else. We have arrangements with lawyers to send letters of demand for $75. That’s a worthwhile investment.”
One benefit of using these suites is that clients receive emails from the firm’s own email account rather than a third-party app, which maintains a direct and better relationship with the client.
Customisation is critical on the firm’s side, too. FeeSynergy rewrites collection and credit policies which tightens up the timeline significantly, Ebb says. FeeSynergy is also a finance company that can offer low-margin commercial lending to help clients who can’t pay.
“The firm has control over which clients they offer it to, and the firm organises it," Ebb says. "We pay the firm in full up front, whereas the client can spread those payments over three to 12months. Many choose to pay that way year in, year out. That’s the way they like to smooth out their cash flow."
Other important customisations can include referencing the name of the firm, rather than the payment system, on the client’s bank statements when clients pay by credit card, says Gabor Szekernyes, Apxium’s sales director.
If clients only see the name of the payment system on their statement, they are more likely to query the transaction and ask their bank to reverse it. The firm pays a penalty for each reversal (a chargeback) and then has to chase the client for payment again. “Our chargeback rates are negligible,” says Szekernyes.
The cost of collecting money
A critical factor in picking a solution is the cost of collecting money. Some direct debit solutions such as GoCardless charge a percentage of the fee, whereas the suites charge a low fixed price. “We cost 77c for direct debit and 44c for SMS. We try to be the cheapest in the market at each point,” Szekernyes says.
The return on investment in debtor management can be relatively quick compared to other software purchases. If a firm has historically had average debtor days at the 75-90-day mark, the right solution can bring that down to under 30 days – or less. Says Ebb: “We have some firms in the teens.”
How BridgePoint gained a clear view of outstanding payments
Debby Thomas worked in several firms before joining North Sydney-based BridgePoint as a practice manager in late 2018. It was there that she switched on invoice reminders in Xero. (The firm was previously using Xero Practice Manager to send invoices.)
Although the reminder service was only operating for a month, it had an immediate impact.
“A couple of clients said they didn’t realise they had outstanding amounts, and they said, ‘I’ll pay it now.’”
A month later, Thomas switched to a debtor management app. The main driver was taking payments – if a client wanted to pay by credit card they had to do it via phone. Thomas had looked at using the Pay Now service in Xero, but was turned off by the high fees charged by payment gateway provider Stripe.
BridgePoint eventually decided on Apxium, recommended by ANZ. During the demo, Apxium showed which clients on BridgePoint’s customer list owed the most money on invoices.
“It was amazing. They also had the whole engagement service – you can send engagement letters and set up payments straight away,” Thomas says. Another big selling point was giving clients the ability to see all their history with their firm, including their last invoices received, and which were paid or outstanding.
BridgePoint set up Apxium in June 2020 and is still implementing various features in the suite. Debtor days are slowly coming down, although not all clients have been billed through the new system.
“It’s definitely given us more control and there is less admin time. I’m interested to see what the next six months bring when we offer payment instalment options and especially the debtor funding,” Thomas says.
What you need to know about some of the most popular debtor management products.
The table below outlines key facts about 11 popular debtor management products. The options listed here are by no means exhaustive. A product’s inclusion should not be regarded as an endorsement by Chartered Accountants Australia and New Zealand. Information included in this guide has come from the relevant vendors or associated websites. Prices may be subject to change.
|Product||Cost||Featured offered||Manual approval of reminder emails||Can you customise the email templates?||Does the product arrange calls to debtors on a client's behalf?|
|Invoice Sherpa||US$49 per month||Invoice reminder and collection software that automatically chases late invoices and integrates quickly with all major accounting software platforms.||Yes||Yes||No|
(has three integrated products: ezyCollect, ezyCollect Credit Insights, ezyCollect Payments)
|No set-up fee to integrate with cloud accounting software; A$995 set-up to integrate with ERP. A$125-$750 per month + GST (average price range)||ezyCollect – credit management platform
ezyCollect Credit Insights – credit scoring, monitoring and onboarding
ezyCollect Payments – payment solution for clients’ customers to make seamless payments
|Yes||Yes||Yes, but ezyCollect advises it’s better for clients to contact their customers through the provided schedule|
|FeeSynergy Collect||Price on application
||Automatic email reminders, integrated direct debits, online payment gateways, online payment arrangements, partner and manager dashboard, engagement letters and proposals, client self-serve invoices and statements, outsourced accounts receivable, integrated fee finance options. Integrations include Reckon APSD, MYOB AE/AO, Handisoft, GreatSoft, CCH iFirm, Xero and Lexis Affinity.||Yes and no, Reminders are fully automated to suit the firm’s business rules, but they can be manually pushed if required.||Yes||Yes|
||Up to NZ$1500 per month
||Scalable accounts receivable solution. Businesses select an overdue invoice, click ‘Send to Collect’ and Debtor Daddy automatically transfers all history, invoices and account details to a collection partner, no forms or phone calls required.
||Yes|| Yes (but cannot add your firm's logo)
|IODM Limited||Price on application||Automated accounts receivable system that connects with existing accounting software, chases invoices with customers and has a reporting dashboard for transparency.||Yes||Yes||No|
|Chaser||Basic – £25 per month; Standard – £65 per month; Professional – £85 per month; Enterprise – £225 per month||Cloud-based software platform for SMEs that syncs with existing accounting software and allows for escalation of invoices. Chaser then works with the customers to chase payment.
||Yes||Yes||No, unless client escalates to Chaser’s debt collection service|
|Partepay||A$27.50 per month
||For SME clients of accountants. Automates manual processing tasks and brings multiple payment solutions into the one system. Offers a dashboard and admin portal for transparency and control.||No, they are sent automatically based on client preference.||Yes||No|
||From A$200 per month for the whole system
||A platform for accountants that has both regular invoicing/debtor management and an Engagement Engine with direct debit and invoice funding. Fully integrates with MYOB AE/AO, Reckon APS, XPM/Xero.
||No, they are sent automatically based on client preference.
||CollBox Collect, free until you get paid. CollBox Assist, its outsource billing product, from US$250 per month for five accounts.
||Small businesses can send accounts to a Receivables Specialist or send invoices to collections. CollBox finds the best agency to recover your money.
||No. On an Assist subscription the Receivable Specialist sends emails.||N/A||Yes, through an approved agency|
||From A$39 + GST per month
||Helps automate the debt/payment collection process by setting up payment plans for clients to pay their invoices. Allows credit card and instalment payments.||No, QuickFee CollectAR is there to drive automation
||Yes||Yes, but QuickFee advises it’s better for clients to contact their customers
||From £25 per month
||Automated payment reminders, credit risk data of new and existing customers, and flexible finance options to manage your debtors and improve your cash flow.
||Yes||Yes||If client opts for bad debt protection, this service is provided through Nimbla
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