image for Credit Control is dead. Long live Direct Debit!

Credit Control is dead. Long live Direct Debit!

Published on Friday, 17th February 2017, contributed by FD Works

By Jonathan Gaunt,  MD at FD Works 

How much time does your agency spend chasing up late-paying clients? Getting customers to pay for projects on time can be a struggle sometimes, and that means you spending more and more time on credit control – and less and less time on being creative!

Recent research by the guys at Xero online accounting found that the average UK small business spends 10% of the working day chasing invoices. That’s two days a month of your precious business and creative time spent purely on credit control.

So, how do you remove the need for such time-consuming credit control and invoice chasing? The answer is to let the technology do the heavy lifting and to sign up for the GoCardless for Xero cloud-based Direct Debit solution.

The problem of late payment and credit control time

65% of businesses fail because of financial issues and late payments are one of the key factors that will lead to your agency experiencing poor cash flow, mounting debts and (eventually) the business having to fold through lack of available capital.

The average invoice is paid 14 days late, and when customers are that tardy with their payments it’s easy to see the negative impact this will have on the financial success of your agency. If you’re going to guarantee the revenues, cash flow and capital needed to keep the agency running effectively, you need a predictable flow of cash into your bank account.

There are a multitude of reasons why late payments are bad for the health of your agency:

  • Time-consuming credit control – in an effort to claw back that missing income, you spend hours of your working week chasing up unpaid invoices and reviewing your aged debts. It’s essential to do, but it distracts you from your true focus – client work and running the business.

  • A negative impact on client relationships – chasing a client to pay their overdue invoice puts pressure on your working relationship. It’s awkward, it’s inefficient and has the potential to irreparably damage your one-to-one relationship with the client – and that’s bad for referrals and your brand profile.

  • Your cash flow will suffer – if cash flow is the heart of your agency finances then late payment is the blockage that’s eventually going to cause a heart attack and stop you dead in your tracks. If you’re balancing your costs and overheads against forecasted income, your budget will be shot to pieces when payment isn’t made on time.

  • Long-term plans can suffer – without the ready money you’d forecasted and accounted for, you won’t be able to hire that new designer, expand your client management team or move to that bigger office space you’ve had your eye on. Reduced income = reduced ability to grow.

So, what’s the answer to the problem of late payment, and the amount of business time spent on credit control and aged debtor reports?

GoCardless for Xero – the solution to your late-payment issues

The easiest way to reduce the problem of late payment is to make sure your agency invoices are ALWAYS paid on time. And you can achieve this position of ‘prompt payment nirvana’ by moving your client payments over to the latest breed of Direct Debit solution.

GoCardless for Xero, powered by DirectLi, is a cloud-based Direct Debit solution that plugs straight into your Xero cloud accounting system and removes all those problematic late-payment issues that have been holding the agency back.

  1. Send your customers a request to pay their bill via Direct Debit

  2. GoCardless for Xero collects the payment automatically on the invoice due date

  3. Payment goes straight into your bank account and reconciled in Xero

And dispel any preconceptions you may have around Direct Debit as a payment option: advances in technology and cloud software mean GoCardless is no longer the clunky, cumbersome Direct Debit beast that you may be used to.

GoCardless ditches the tedious paperwork and hard-copy mandates and moves the whole process online. And forget about the up-front fees that many of the high street banks ask for when setting up Direct Debits – with GoCardless there are no set-up fees or costly investments to use the service.

You’re charged a simple 1% fee, capped at £2 per transaction. There are no additional costs, and fees are automatically reconciled in Xero to your bank fees coding. Your invoices are paid on time, every time. And your customers need never worry about missing a payment date again.

Remove your credit control headache

At FD Works, we think GoCardless is an absolutely essential tool for freelancers, agencies and creative businesses that use Xero.

If you want to remove the issue of managing your credit control and aged debts, it’s the simplest, most efficient and cost-effective way to cure your late-payment headache. And when you know your invoices will be paid on time, and the cash collected automatically, you can get much more proactive about making your invoicing as effective and profitable as possible.

  • Move the right clients to GoCardless – in an ideal world, best practice would be to move your entire client base over to GoCardless and Direct Debit payment of your invoices. But there will be instances where some clients aren’t in a position to take the Direct Debit route. Go through your portfolio, find the right clients to switch to GoCardless and have a conversation with them to underline the benefits of automatically paying your invoices on time.

  • Get payment up front for projects – get into the habit of asking for a first payment before you start any work on a project. Work this into your terms and conditions and make sure clients understand that you use GoCardless and will be taking their first instalment on a pre-agreed date. It sets the right precedent for good payment practices and keeps your cash flow looking healthy right from the offset of the project.

  • Invoice the client at key milestones – break up each creative project into key milestones and invoice the client when each milestone has been achieved. It gives the project momentum, breaks up the cost of your fee for the client and, by taking payment via Direct Debit, gives you a regular income from this piece of work.

  • Aim to get on a monthly retainer – agreeing on a monthly retainer fee with a client is a key goal to aim for. Retainer fees bring in a stable and highly predictable source of income for the agency, and when you’re collecting the fee by Direct Debit you know payment always going to be settled on time.

  • Automate your invoice chasing – if you have clients who can’t go the Direct Debit route, it’s easy to automate the invoice chasing procedure and cut that additional admin out of your working time. The Chaser app for Xero sends out your personalised and templated chaser emails to clients automatically, as soon as the invoice is overdue

When the software is taking care of your payment collection and debtor chasing process, that’s one less thing for you to worry about as an agency owner. And when there’s a regular and highly forecastable flow of income into the business, you know you’ve always got your costs and overheads covered and have the liquid cash needed to start expanding your operations.

Talk to us about moving to GoCardless for Xero

As a Xero partner and your best friend in finance, the FD Works team love helping creative businesses feel the benefits of a cloud-based approach to invoicing, payment and accounting.

If your agency is already using Xero, we’ll help you set up GoCardless for Xero, integrate it with your Xero accounts and get your customers signed up for Direct Debit payments. And if you’re new to online accounting, we’ll help you move your finance systems over to Xero and get GoCardless linked seamlessly into your payment processes.

Let Direct Debit and software automation do the hard credit control work and give yourself two more days per month to focus on expanding your creative potential and growing your agency.

To integrate your business with GoCardless for Xero, just give us a call on 01454 300 999, or drop an email to