This is part of HappyAR’s ongoing Vendor Review series where we help busy company owners and executives evaluate their options for software and services that help the finance operations functions. These solutions will be related, and possibly integrated with our AR automation SaaS. Make sure to follow us as we continue to post new guides that can help companies of all sizes. This review is on Zoho Invoice.

About Zoho

Zoho offers a suite of business, collaboration, and productivity applications. The company offers over 30 online applications from CRM to mail, office suite, project management, invoicing, email marketing, social media management, and more.

Today we’re looking at Zoho Finance Plus and specifically the Zoho Invoice portion of the suite.

Keep in mind that Zoho Invoice is a product that’s completely free. To understand why that’s the case, here’s the company’s explanation:

Zoho has been a profitable, bootstrapped, privately-held company for over 20 years; we’ve been offering free (and ad-free) productivity apps for more than a decade. While some of our products are free, others are paid. Paid products subsidize our free apps. Free apps bring more awareness to our paid apps and brand in general. Our business model is as simple as that. There’s no hidden agenda here to sell user data for ads.

Zoho was founded in 1996 by Sridhar Vembu and is based in Pleasanton, CA.

Zoho Invoice Process Overview

According to the company:

Zoho Invoice is online invoicing software that helps you craft professional invoices, send payment reminders, keep track of expenses, log your work hours, and get paid faster—all for free!

• CREATE Professional Invoices. Crafting professional invoices is essential for creating the right brand image, building trust with customers, and encouraging payment. Zoho Invoice lets you create perfect invoices in seconds.
  

• SEND Invoices Effectively. Zoho Invoice helps ensure that the invoices you send actually reach your customers. Your clients may also appreciate timely reminders to clear their past-due balances and avoid penalties.

• A simple payment process helps you get paid on time. Provide multiple payment options that your customers can choose from to make their payments securely.

We were up and running with custom invoices within ten minutes.

This included confirming our account, customizing an invoice template with our company information and branding, selecting sales tax collection functionality, and linking our payment method (in our case, Stripe).

We liked how there was the ability to select your industry and business type to guide the setup process:

Customizing and branding invoices for our business was intuitive and fast:

We completed this part of the setup in less than five minutes:

Connecting and configuring payments was also very easy. We only did Stripe for our test, but the other options are very popular and we assume that they will be easy to connect as well:

The solution does feel like it’s built for very small companies and freelancers, so we liked the ability to set up mobile access upfront:

Here is our feedback after registering, configuring, and trying the system out:

• We love how easy it was to activate and configure. You do not need to be a technical person to figure this out.
• The iOS and Android mobile apps are an awesome touch. Great for productivity.
• The price is certainly right for companies and freelancers on a budget. It’s hard to beat free.
• We felt that the solution was more focused on small businesses and freelancers. Those organizations should review this application but mid-size and enterprise organizations may find the integrations and functionality to be limited.
• With this in mind, it would make sense to review existing integrations to make sure that connections can happen before you get started. Their pre-built integrations are limited compared to other solutions. Zapier does have Zoho Invoice connections, which is how you could integrate with solutions like HappyAR.
• If you or your accounting agency use other systems like QuickBooks or Xero, you may find Zoho Invoice to be limiting. Zoho has a massive business suite that appears to be their priority to connect you with. Not all of those products are free.
• Some criticisms in the past for Zoho have been around complex implementation and poor support compared to paid products, but we didn’t experience this with Zoho Invoice.

Why you Should Send Invoices Electronically

• The speed and time saving of not having to manually create PDFs, purchase paper materials, print documents, mail, and wait. Even if you’re attaching PDFs to emails, the amount of time you’re wasting per year adds up if you aren’t using invoice automation tools. You also run the risk of email with PDF attachments being blocked by SPAM filters.
• These solutions help greatly reduce or eliminate human error especially when they are part of accounting systems like Zoho Books. No more manual double entry means more accurate billing and better customer relationships.
• You will be able to directly tie in electronic payment options for the convenience of your client and for the benefit of your accounts receivables team. This will accelerate payments and offer an easier way to incentivize early payments.
• With electronic invoices, you will be creating a digital audit trail to protect yourself against problems collecting past due payments that may end up with a collections agency or law firm.
• This process will reduce wasteful paper and inefficient mail processes that are especially impacted by more work-from-home staff members.
• eInvoices give your team better visibility, especially if you tie in accounts receivable automation solutions like HappyAR.

About the Market and Alternative Solutions to Check Out

Because of its huge business suite, Zoho products compete with many different SaaS categories. The big Zoho Books competitor is QuickBooks, specifically QuickBooks Online. Any evaluation for small business and freelance software solutions should include Zoho Books and QuickBooks.

We also think that FreshBooks and Sage Intacct are good SMB options to review. If you are a small business, be careful with more advanced enterprise accounting solutions that may have too much functionality, are difficult to self-implement, and are costly. If you are a larger organization (maybe with over 100 employees) or have a high volume of invoices, looking at mid-size and enterprise solutions would be smart to do.

Agencies should consider solutions that allow for multiple client views and address the needs of the companies they serve.

Zoho Invoice competes directly with invoicing software like Bill.com and Invoiced and helps to streamline the online invoicing and receivables process without full accounting functionality. While some of these may be good options for companies that have an existing accounting platform, Zoho Invoice may work best only with the larger Zoho Finance suite.

You may want to consider an option that has seamless integration with your CRM system in order to capture a complete view of your sales and collection lifecycle and the activity happening with each client. Zoho has had a long-standing CRM that competes with Salesforce.com.

Note that HappyAR has an open API and connects to all of these major systems to even further improve the collections process.

With all software reviews, we suggest using G2 as an impartial evaluation source.

About HappyAR and our ability to integrate with Zoho Invoice

HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables work.

We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

With all of our accounting and invoice integrations, which is possible with Zoho Invoice, HappyAR pulls all new invoice data over to our system to reduce double entry and to intelligently change steps in real-time for active workflows.

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.

This is a Why and How-To ACH Guide from the HappyAR team. We elected to set us a Stripe ACH integration for our payment gateway due to the flexibility of their API and the payment options that Stripe supports. There are other out-of-the-box options to consider, but if you have access to development resources that can connect the Stripe API, we strongly suggest it for the price, speed, security, and flexibility.

This article covers Stripe’s ACH capabilities which we consider to be essential for both B2B and B2C US-based companies that want to offer options to their customers.

What exactly is ACH?

ACH is short for Automated Clearing House and is a network used for electronically moving money (USD) between bank accounts exclusively in the United States.

The network has existed since the 1970s and ACH credit transfer volume is growing consistently each year.

These payments aren’t just for B2B transactions and can also be used for government, consumer, and even some international payments.

ACH transactions take around three business days to access and appear on your bank statement depending on several factors with timing, your bank, and the client's bank.

What is Stripe?

Stripe provides APIs that web developers can use to integrate payment processing into their websites and mobile applications.

Businesses of every size from new startups to public companies like Salesforce and Facebook use the company’s software to accept online payments and run complex global operations. The company combines economic infrastructure with a set of applications for new business models like crowdfunding and marketplaces, fraud prevention, analytics, and more.

The company was founded in 2010 and is headquartered in San Francisco, CA.

Learn more about Stripe here

What is Plaid?

Since 2016, Stripe and Plaid have partnered to offer seamless bank account verification for their customers. Any evaluation of Stripe’s ACH functionality will inevitably include a look at a Plaid account.

Users can instantly and securely authenticate their bank accounts through a Plaid link. This eliminates the need for manually entering an account number and routing numbers and then waiting for micro-deposits.

Learn more about Plaid here

Why should I consider adding Stripe ACH to my payment options?

We are huge advocates of offering as many payment methods to your clients as possible to accelerate the accounts receivable process and to make checkout for online purchases easier.

While there are some small downsides to ACH when it comes to refunds, funding delays, and costs associated with very high volumes, the upsides far outweigh these.

These upsides include:

• ACH payments cost way less than credit card payments. There’s no need to add an irritating service charge for your customer or to eat the approximate 3% fee from the credit card network. These charges are very small compared to other payment types.
• ACH payments are open to anyone with a US bank account – both B2B and consumers.
• ACH debits help reduce churn associated with expired credit and debit cards. Bank account details may change, but all credit card information needs to be renewed periodically.

Keep in mind that refunds and disputes on ACH payments are fundamentally different than those on credit card payments.

If a customer’s bank accepts the request to return the funds for a disputed charge, Stripe immediately removes the funds from your Stripe account. Unlike credit card disputes, you can’t contest ACH reversals, so you must contact your customer to resolve the situation.

How would I go about adding Stripe with ACH payment functionality?

It’s important to note that configuring Stripe functionality, including ACH payments, requires integration experience from a development resource. This is not a plug-and-play software solution for non-technical folks.

There are plenty of resources available that can help you configure the web service, but make sure not to cut corners with inexpensive resources. Thoroughly review the qualifications of developers that you interview and only select ones that have extensive experience with this technology and have strong reviews. Data and application security with payments is critical and you want to work with reputable resources or agencies before there is exposure to your bank information or your customers' bank accounts.

If you want the flexibility and cost savings of hiring an international developer with the confidence that they have been thoroughly screened, consider a resource like Scalable Path – a company that HappyAR has used successfully in the past.

Stripe is a large and very popular technology, so API keys, docs, webhooks, endpoints, and sandbox access will be easily available and very well documented for developers to use.

About HappyAR

HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables workflow.

We partner with various accounting, invoicing, and ERP systems that also allow for Stripe ACH integrations.

We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our pricing starts at $0/month and scales up based on your invoice volume.

Visit us at www.happyar.com to learn more.

This is part of HappyAR’s ongoing AR University series where we help busy company owners and executives get a quick understanding of accounting metrics, financial statements, finance operations, and accounts receivables concepts. Make sure to follow us as we continue to post new guides that can help companies of all sizes. This article is focused on how companies use a dunning letter in their financial operations

What does “dunning” mean?

The origin of the word “dun” is disputed but its original use was first recorded in the early 17th century (1620). The definition is:

verb (used with object),dunned,dun·ning.

to make repeated and insistent demands upon, especially for the payment of a debt.

noun

a person, especially a creditor, who duns another.

a demand for payment, especially a written one.

What’s a dunning letter?

Simply put, a dunning letter is slightly more aggressive in tone than a reminder email but less aggressive than a demand letter.

It serves a role in between these two extremes when an account balance is owed, and gentle reminders have been made to collect.

The purpose of this note is to clearly increase the intensity of the collection without damaging the client relationship with a much harsher and threatening tone. While that may be required in the future, using it too early can have unwanted consequences.

Dunning letters and emails can help reduce days of sales outstanding (DSO), increase cash flow, and avoid the heavy percentages taken by collection agencies and debt collectors.

When should I use a dunning letter?

Using automation technology for your account receivable follow-up workflow and includes visibility into when emails are opened, clicked on, and forwarded will give you a much better understanding of if your request is being ignored or not seen in the first place.

This is a lot more challenging to do with paper invoices unless you are mailing with delivery confirmation.

Don’t be surprised if way fewer than 50% of your email follow-ups and subsequent letters are being seen by the recipient. This could be related to:

• Turnover in their accounts payable department and the recipient no longer being there
• Specific copy being used in your emails that send them to the recipient’s spam folder
• Problems with your domain’s deliverability settings that send messages to a spam folder
• Messages being overlooked due to high consistent volume
• Not personalizing follow-up emails enough and having them being disregarded before opening
• Not sending a quick follow-up forwarded email two days after the original. These often receive better response rates, so we highly encourage them.

If you are unsure if your correspondence is being seen, make sure to follow up with a phone call and leave a voicemail every time.

If you’ve exhausted two or three email outreach attempts, with follow-up emails for each, and voicemails, it’s time to escalate the message in a tone and send a dunning letter.

Information to include in dunning letter templates

Here’s what you’re going to want to include in your dunning letter and what you should avoid:

• Include a summary of payment reminder attempts you have made to date. AP departments are busy and may not recall the previous notes you sent.
• Reiterate the invoice amount due, original due date, days past due, and a brief description of what the debt is related to. Include access to the original unpaid invoice.
• Suggest that you will be escalating the request to executive members of their team if a response isn’t received, and prepare to follow through with this by researching senior contacts on LinkedIn.
• Explain all payment method options available to them and any payment plan information if you offer those.
• Remind them that you will be following up via phone shortly – and do it!
• Request a status update and explain that overdue payments cause a financial burden to your organization.
• Briefly explain any next steps in the debt collections process if you have them defined but DO NOT use threatening language around damaging reputation, credit scores, or legal action. Not only is this unethical and unlikely to help resolve anything, it can also be illegal. Know what the collection rules and laws are and obey them!

About HappyAR

Follow HappyAR’s AR University for more quick finance learning opportunities, like this one on dunning letters, intended for business owners that are interested in gaining a better understanding of the health of their business and their finance operations.

HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables work. We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.

About Xero

Xero invoicing is a suite of online accounting software for small businesses, accountants, and bookkeepers. It enables its users to track and manage cash flow processes, invoicing, payments, reporting, and pay runs. Users can use Xero through any one of its three monthly subscription packages: starter, standard, and premium. The software solution is available on Mac and PC platforms.

Xero was founded in 2006, the company is headquartered in Wellington, Wellington, New Zealand.

Xero currently offers a 30-day free trial that includes a 30-day free trial and the ability to:

• Send invoices and quotes
• Enter bills
• Reconcile bank transactions
• Capture bills and receipts with Hubdoc
• Use multiple currencies
• Access on the go with the mobile app

Pricing depends on functionality and volume and can be found here.

Xero Invoicing Process Overview

• It only took us a minute or so to register for a free trial and to have the ability to start using the full features including invoicing. No credit card was required to get started.
• You’ll have the option to use classic invoicing or new invoicing:

Classic Invoicing

New Invoicing

• You’ll also have the option to “add more details for polished, professional invoices”. These include a logo, phone number, and address, although adding an address should be strongly suggested or required if you plan to collect paper checks via mail.
• Within a minute, you can add or select a recipient, adjust sections of the invoice like line items, due date, and tax rate, preview, and edit an introduction email:

• Shortly after, your invoice will be received by your client with the option to click through and pay. Notifications will be available in the platform and via email.
• You’ll be able to import existing invoices to the system now or in the future.
• Linking your online payment process is simple and includes offering options for credit cards, debit cards, PayPal, and more. For clients that already accept payments through Stripe, integration between systems exists. Seamless connections with your company bank account will allow for fast deposits and access to funds.
• Note that if you’re evaluating Xero with other accounting or invoicing systems, you may not want to send many invoices during the evaluation period. If you’re still undecided after 30 days, you may have outstanding invoices with links to a deactivated Xero account.
• We liked the easy setup and intuitive invoicing interface. Setting up invoice templates would help to accelerate the accounts receivables process. You will also have the option to set repeating or recurring invoices.
• We couldn’t tell any big differences between the two invoice interfaces, so it’s possible that Xero is just phasing to the new, more modern one.

Why you Should Send Invoices Electronically

• The speed and time saving of not having to manually create PDFs, purchase paper materials, print documents, mail, and wait. Even if you’re attaching PDFs to emails, the amount of time you’re wasting per year adds up if you aren’t using invoice automation tools. You also run the risk of email with PDF attachments being blocked by SPAM filters.
• These solutions help greatly reduce or eliminate human error especially when they are part of accounting systems like Xero. No more manual double entry means more accurate billing and better customer relationships.
• You will be able to directly tie in electronic payment options for the convenience of your client and for the benefit of your accounts receivables team. This will accelerate payments and also offer an easier way to incentivize early payments.
• With electronic invoices, you will be creating a digital audit trail to protect yourself against problems collecting past due payments that may end up with a collections agency or law firm.
• This process will reduce wasteful paper and inefficient mail processes that are especially impacted by more work-from-home staff members.
• eInvoices give your team better visibility, especially if you tie in account receivable automation solutions like HappyAR.

About the Market and Alternative Solutions to Check Out

The big Xero competitor is QuickBooks, specifically QuickBooks Online. Any evaluation for small business and small accounting agency software solutions should include the Xero accounting software suite and QuickBooks.

We also think that FreshBooks and Sage Intacct are good SMB options to review. If you are a small business, be careful with more advanced enterprise accounting solutions that may have too much functionality, are difficult to self-implement, and are costly. If you are a larger organization (maybe with over 100 employees) or have a high volume of invoices, looking at mid-size and enterprise solutions would be smart to do.

Agencies should consider solutions that allow for multiple client views and address the needs of the companies they serve.

Invoicing software like Bill.com and Invoiced help to streamline the online invoicing and receivables process without full accounting functionality. These may be good options for companies that have an existing accounting platform but wish to enhance the AP/AR functionality or for those that use an outsourced bookkeeper or accounting firm but elects to send invoices themselves.

You may want to consider an option that has seamless integration with your CRM system in order to capture a complete view of your sales and collection lifecycle and the activity happening with each client.

Note that HappyAR has an open API and connects to all of these major systems to even further improve the collections process.

With all software reviews, we suggest using G2 as an impartial evaluation source.

About HappyAR and our Xero Invoicing integration

HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables work.

We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

With all of our accounting and invoice integrations, including Xero, HappyAR pulls all new invoice data over to our system to reduce double entry and to intelligently change steps in real-time for active workflows.

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.

Keeping your company in the black by properly invoicing your customers means providing them with information on their bills that clearly communicates what you expect. Aside from the total amount due, the most important number that your invoices should feature is known as the balance forward.

What Is the Balance Forward?

The balance forward shows the sum of the previous balance (if a client has unpaid invoices or a delinquent previous bill) from a specific date range.

This should be added to a customer’s current balance to show the total amount due. Depending on how long it’s been since the customer last paid, the balance forward may even take into account non-payment from the prior fiscal year.

This number can also be zero if there is no outstanding money due from a previous statement. In other words, it can also show an opening balance.

Bank account ledgers also show balance forwards. For example, if you were looking at a bank account statement for 2021, it might show a detailed list of the current year’s transactions underneath last year’s final balance.

If a negative number appears, this means there was an overpayment on the part of the customer. You can handle this in several ways.

One method is issuing a credit balance to the customer that will go toward their next bill. You may also refund the overpaid amount to their bank account. A negative invoice charge is another way to apply the overpayment to the next bill.

What is a Balance Forward Statement?

A balance forward statement is a single page or document that lists all payment activity that falls in a specific date range.

This statement will show the previous balance at the top to show how the balance forward has been calculated.

Keep in mind, however, that this statement doesn’t necessarily show the current amount that a customer owes because it’s only used to refer to a set time period. For this reason, a balance forward statement is different from accounts receivable, which gives the current balance owed.

Make the Balance Forward Obvious

It’s important to give customers visual cues on their bills to show them exactly what you want them to do and where they need to look for information.

The balance due portion of a bill is usually the place you’ll want to guide a customer’s eyes, so you’ll need to make the wording, formats, and design instructional.

For simplicity, many bills feature a box at the top of the page that shows the amount of the last payment, the date of the last payment received, and the balance forward, in that order.

The main body of the bill will show the current date range’s payment due, adding this to the previous balance to arrive at the amount the customer needs to pay. Including a due date and payment terms can help the customer maintain positive standing with their accounts.

How Balance Forward Helps with Planning

The more information a customer has, the better. You want them to pay their bills so your company maintains healthy cash flow, while they don’t want to be delinquent on payments.

Giving your customers a balance forward statement shows them more information than just the total amount due. By understanding the amount they owe for unpaid invoices to make their accounts current, the balance forward helps them see their current standing.

Because credit scores determine buying power in so many areas of life, these statements help customers to avoid interest payments and maintain healthy credit.

When the customer can determine what their proper allocation of funds should be, they are in a better position to stay out of debt and send your company payments in a timely manner.

Accounts Receivable

On your end of the payment chain, you’ll need to keep a balance sheet of accounts receivable for each customer. This will tell you the entirety of what the customer owes. Instead of focusing on a specific date range, accounts receivable will refer to all outstanding debts for a given client.

Accounts Payable

Accounts payable refers to what you owe other companies. When you receive a bill for services rendered by another company, accounts payable is where those payments will need to be logged.

What is an Open Item?

Open items and balance forwards are similar but differ in a fundamental way. While the balance forward amount shows outstanding payments from a specific date range, the open item shows all outstanding payments.

Whether your bills and invoices will show an open item or balance forward amount will depend on how your company makes a customer’s account balance current. If your business provides a grace period for one bill payment before default, then you would probably only ever show a customer their remaining balance forward amount.

Balance Forward in 401(k) and Sharing Plans

For another look at the term “balance forward,” let’s turn our attention to 401(k) accounts. In this context, a balance forward plan is a 401(k) or another type of sharing plan that values accounts on a monthly, bi-monthly, quarterly, or even yearly basis, as opposed to daily.

Generally, balance forward plans are only done with pooled investments.

With valuation happening so infrequently, the account providers can’t show their customers’ the current value of their accounts. Plan assets will likely be different from the last valuation, especially in a turbulent market.

If an account valuation shows $500,000, but it dropped because the market took a downturn, the actual value could be far less. If the customers’ retirement plan terminates after this downturn, they may not realize that they’re not getting the full valuation they expect.

Most plans take market fluctuations into account. If a participant requests payment of the balance, they’ll receive anywhere from 75% to 90% of the current valuation. Once the next valuation is calculated, the participant will receive the remaining balance.

Advance of Technology

Obviously, a balance forward sharing plan is not ideal. Since the advent of computer tracking tools for stocks, bonds, and other investments, plans that show current, accurate valuations have nearly made balance forward plans a thing of the past.

For accuracy’s sake, most people prefer to use plans that offer daily valuations. Most investment plans are moving away from balance forwards for this very reason.

Better Invoicing

Giving a balance forward statement helps all parties to stay on top of their unpaid invoices and other debts. By structuring an invoice with this essential information in a logical place that is easily seen, the customer can track their debts, which makes it more likely that they’ll pay them in a reasonable timeframe.

Having the right structure in place for your statements can also help any employees who are responsible for keeping tabs on the flow of money coming in and out of the organization.

Whether you rely on software to automatically tabulate payments or you use templates for manual entry, remove human error from the equation as much as possible. Find layouts that are easy to read and easy to use, both for your employees and for the clients that receive your statements.

With a firm understanding of the purpose of balance forward statements, you can use them effectively to keep your books up to date and error-free, all while encouraging your clients to pay their debts on time

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.

We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

If you’re a business that sends invoices, it’s inevitable that you will encounter past-due accounts at some point. If you end up encountering invoices that go past their due date, it’s almost a certainty that some of these will end up going to a collection agency or getting written off completely.

We’re two business owners that founded a business services company in 2009. Since then, we’ve sent thousands and thousands of invoices and have had to deal with the problems of chasing late accounts. So much so that we developed a SaaS company that focuses on automating part of the accounts receivable function that deals with getting invoices paid.

We welcome you to learn from our experience with this guide that will break down the many aspects of past due accounts and how to deal with them.

This guide is intended for B2B and B2C business owners and finance team members involved in accounts payable, accounts receivable, invoicing, and collections. Enjoy!

• Why past due accounts are bad for business
• Protect yourself early and try to avoid past due accounts in the first place
• How to best use AR automation tools
• Collection method best practices
• Recourses, late fees, and when to send a debt to a collection agency or law firm
• About HappyAR

What Does Past Due Mean?

The definition of past due refers to a payment that has not been made by its cutoff time at the end of its due date. While percentages vary for different industries and company sizes, the general U.S. benchmark for past due invoices is around the 50% mark.

Why Past Due Accounts are Bad for Business

• Late payments disrupt your cash flow which can negatively impact your ability to invest in growth initiatives, pay your expenses and vendors, and qualify for borrowing. The list of damaging effects of late payments and write-offs is considerable especially if you’re a company that pays on time and cares about the financial health of your organization and how investors and banks may view it.
• Past due invoices can have a damaging effect on relationships with clients. Disorganized follow-up attempts, threatening language, and collections processes that aren’t compliant for B2C customers can all hurt your business for years even though the debt isn’t your fault!
• If sales commissions are impacted by accounts receivables, your reps may lose motivation and question what’s holding up their commissions. You run the risk of losing your best team members that may start looking elsewhere if they view AR collections as soft.
• Chasing a past due balance takes a lot of time and effort. If you aren’t automating this work, you’re either doing it yourself or wasting money for staff to perform repetitive tasks.

Protect Yourself Early and Try to Avoid Past Due Accounts in the First Place

There are plenty of actions you can take to greatly reduce the number of past-due accounts you have to address.

• If you’re still sending invoices the old-fashioned way with a PDF attachment or worse, through the mail in a paper format, you’re inviting the worst out of your customers. Invest in an invoicing system, preferably one that ties into your accounting software. Most of the bigger companies have this functionality built-in, so use it!
• Clearly spell out your terms and conditions for payments in your statements of work, sales contracts, and especially invoices. Your clients deserve to know your terms and conditions for accounts receivables. If they ask you to adjust specific items like net payment days, consider what you’re comfortable with, but clearly spell out how you handle collections, late payment fees, and when you send debts to collection agencies.
• For B2B relationships, connect with an accounts payable contacts very early in the process. Get their name email address and reach out to introduce yourself. Send a connection request on LinkedIn. Make sure you have their direct phone line. If you are working with a large client that has an AP department, just get as much contact information that you can. Trust us, you might need this later to connect with this team frequently and you don’t want to start looking for it after you know there’s a problem.
• For B2C customers, make sure you have the information you would need to send them to a collection agency or to credit bureaus.

How to Best Use AR Automation Tools

We mentioned invoicing systems in the previous section and how they can prevent a past-due bill in the first place. We’re obviously very big fans of AR automation and have made it our company mission to develop technology that gets your invoices paid faster.

Make sure that you’re getting the most out of AR automation tools or manual processes with the following tips:

• Give your clients multiple payment options. Take the friction out of the payment process by accepting all credit cards, ACH, PayPal, wire payments, etc. Have options for one-time charges and payment arrangements. Provide super easy instructions on all correspondence and documents.
• If you are going to provide an early payment discount then make it compelling, clearly spell it out, and make sure it’s honored. If the cut-off is five days for the payment to be in your account, don’t offer the discount if it’s later than that.
• Define your tone and create follow-up copy that can be used by members of your team without extensive training. For the tone, we like to keep things professionally persistent. Being aggressive and demanding will often backfire. Being passive will lower the priority of paying you. Make sure they know that prompt payment is critical for your business and that you are organized and will be staying on top of them for updates and payment timelines. Just don’t lose your cool!
• With AR automation tools like HappyAR, you get visibility into when your electronic correspondence is opened. If you see that it’s not, keep in mind that it may have landed in a SPAM folder. Use a SPAM copy checker online to write your follow-up copy and keep in mind that a lot of finance language gets flagged. Don’t be shocked when you aren’t paid on time if the invoice was never seen in the first place and use your AR automation to set yourself phone call reminders and LinkedIn touches.

Collection method best practices

• Be organized and diligent. “The squeaky wheel gets the grease” is certainly true in AR collections. Stay cool but be active. If you aren’t using AR automation, create reminders for following up on the due date and every few days after depending on how the client replies.
• Offer options if needed. Monthly payment plans should only be used if there’s a known reason for delinquency. Insist on answers! “The check was sent” should be followed with “Can you tell me on which day, the check number, and the delivery method?” and “Will you confirm the address to which it was sent?”.
• Escalate the request to someone higher up. Call the CFO and explain the situation. This person may not be the one that cuts your check, but you’ll almost always find that they were unaware of the late payment and will call the AP person to pay right away.
• Keep an audit trail! Record all correspondence by date. Archive all email attempts and responses. AR Automation tools like HappyAR provide a fully exportable audit on demand.

Recourses, Late Fees, and When to Send a Debt to a Collection Agency or Law Firm

• As mentioned in a previous section, your recourses, late fees, interest rates on the due amount, and escalation to a credit bureau (for B2C debt) or collections agency should be fully spelled out in advance and communicated to your client after an appropriate grace period has passed.
• We typically won’t start talking about these things until 30 days past due. Any sooner will be perceived as a threat and can backfire instead of accelerating a payment.
• Before you start mentioning credit reporting, make sure you’re fully educated on debt collection compliance, especially when speaking with consumers. Creditor laws change frequently, and you want to keep yourself and your business safe. Suggesting to a customer that their credit score will be negatively impacted can be an effective collection method, but know what you're talking about and the rules.
• Shop your debt around to different agencies and choose one with experience in your industry. Keep in mind that many B2B collections companies will reject debts under $5,000.
• You’re going to give up a significant portion of your debt to the agency so make this the last option before a charge off. Unfortunately, not all agencies are alike. You should check in on progress periodically. We have experienced problems where an agency didn’t bother to make calls to the client and the issue was delayed and never resolved. Find an agency that wants to earn your trust and partner with you for the long run.

About HappyAR

HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables work.

We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.

What’s a liquidity ratio and what’s considered a good one to have?

This is part of HappyAR’s ongoing AR University series where we help busy company owners and executives get a quick understanding of accounting metrics, financial statements, finance operations, and accounts receivables concepts. Make sure to follow us as we continue to post new guides that can help companies of all sizes.

A liquidity ratio indicates whether your company’s current assets (liquid assets) will be sufficient to meet your short-term obligations when they become due.

This calculation is going to be primarily used by lenders and investors, but it’s also a good way to understand the current financial health of your business. It would be a good idea to periodically run one or more of the common ratios on your own or with your accountant.

What’s Considered a “Good” Liquidity Ratio?

A good ratio will be subjective based on a lot of factors with your business (like age and industry), but anything below 1 is generally considered risky for lenders and investors. Aim for a ratio of 1.25 or higher, but don’t panic if you’re not there. Cost-cutting and accounts payable automation, and accounts receivable automation can rapidly improve your financial ratios, cash flow, and company’s liquidity and can impact your approvals for future borrowings.

Optimizing your accounts payable processes can help ensure cash flow. Automation can help remind clients of discounts in return for quicker payments, accelerate unpaid invoices, prioritize collection efforts for customers with large payment balances, and define weekly cash collection targets. AR software can help you send accurate invoices, provide your team with payment and follow-up visibility, and use the accounts receivable turnover ratio to help you track progress.

This guide includes general industry ratios broken down by year and may be a useful guide to benchmark your business: https://www.readyratios.com/sec/ratio/current-ratio/

A Quick Guide to liquidity ratios:

Before we get into some of the types of liquidity ratios that are used, let’s get some basic definitions out of the way:

Cash equivalents: debt securities with maturities of less than 90 days. Cash equivalents do not include equity or stock holdings because they can fluctuate in value.

Current assets: may include cash, inventory, accounts receivable, marketable securities, supplies, and prepaid expenses.

Current liabilities: financial obligations that are payable within a year, not long-term debt. Examples of current liabilities include accounts payable, short-term debt, dividends, and notes payable as well as income taxes owed.

Liquidity: the ability to cover short-term obligations.

Solvency: ability to pay long-term obligations

Quick assets: assets owned by a company with a commercial or exchange value that can easily be converted into cash or that are already in a cash form.

It’s important to note the difference between a liquidity ratio and a solvency ratio. A solvency ratio includes financial obligations in both the long and short term, whereas liquidity ratios focus more on a company’s short-term debt obligations and current assets. In this article, we’re only focusing on liquidity ratios.

Three Common Liquidity Ratios:

The current ratio, also known as the working capital ratio

Acid test ratio, also known as quick ratio

Cash ratio, also known as cash asset ratio

The current ratio, AKA the working capital ratio, measures your company’s ability to pay off short-term debt obligations with current assets.

The formula for calculating the current ratio is as follows:

Current Ratio = Current Assets / Current Liabilities

Liquidity Ratio Details:

A higher liquidity ratio is generally considered better, and as mentioned before, aim for some margin of safety with at least a 1.25. Anything below 1 indicates an issue with the ability of a company to pay for short-term liabilities and current debts and will likely be a red flag to investors and lenders and should motivate you to make some immediate changes if you’re looking to borrow or raise funds.

The acid test ratio, AKA the quick ratio is more conservative than the current ratio since it removes assets that are most difficult to convert to cash in 90 days: inventory, supplies, and prepaid expenses.

A prepaid expense is a type of asset on the balance sheet that results from a business making advanced payments for goods or services to be received in the future. Prepaid expenses are initially recorded as assets, but their value is expensed over time onto the income statement. Unlike conventional expenses, the business will receive something of value from the prepaid expense over the course of several accounting periods.

The formula to calculate the acid test ratio is:

Acid Test Ratio = (Total Current Assets – Inventory – Supplies – Prepaid Expenses) / Current Liabilities

If you run both the acid test ratio and the current ratio and find the numbers to be way different, that could indicate that you are relying heavily on inventory. Depreciation may also need to be factored in which could change the ratio. This might be a result of the industry you’re in. Retail and manufacturing ratios may be impacted more than professional services and SaaS companies.

What is a Cash Ratio?

Cash ratio, also called cash asset ratio, is the most conservative of the three ratios and looks at the ratio of cash and cash equivalent assets to your total liabilities.

The ratio indicates the extent to which available funds can pay off current liabilities.

The formula for calculating the cash ratio is:

Cash Ratio = (Cash + Cash Equivalent) / Current Liabilities

If the cash ratio is equal to 1, the business has the exact amount of cash and cash equivalents to pay off the debts. If the cash ratio is less than 1, there’s not enough cash on hand to pay off short-term debt.

When your company’s cash ratio is too high, you may be missing opportunities for short-term investments or other growth initiatives.

Follow HappyAR’s AR University for more quick finance learning opportunities, like this one on liquidity ratio analysis, intended for busy executives that are interested in gaining a better understanding of the health of their business and their balance sheet.

HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables work. We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.

What is a collections manager, and what do they do?

Let’s start off by making sure you’re in the right place with this job overview. There’s a collections manager (with an “s”) and a collection manager. One works with museum collections and the other is responsible for collecting money for companies.

A collection (without the “s”) manager ensures the proper care and preservation of objects within cultural institutions such as museums, libraries, and archives.

But we’re not talking about that job title. We’re talking about collections managers, the people that oversee the financial collection department of a company and are responsible for the accurate invoicing of clients and the timely receiving of payments.

For us at HappyAR, this is a very important role as it includes a lot of people that use our SaaS product every day to make their job run smoothly and to improve the financial performance and growth initiatives of their company.

To give you a better understanding of this role, should you be interested in hiring for it or apply for an open position, these are some of the strategic and tactical responsibilities that collections managers often do and will be found on job descriptions:

Job Descriptions:

• This position is responsible for the design and implementation of processes to improve cash flow and reduce receivables.
• Monitors and negotiates the collection of overdue accounts.
• Often recruits, trains, and oversees one or more account receivable clerks or associates.
• Provide appropriate timelines to internal and external clients to ensure that expectations and turnaround times are met.
• Approves partial payments and time extensions for existing accounts within designated limits of authority.
• Works closely with clients, finance management, and account management teams to build effective relationships to refine and streamline the A/R process with new technologies and workflows.
• Manages relationships with technology vendors and third-party collection agencies.

How Much are Collections Manager Salaries in the United States?

According to Salary.com, the Credit and Collections Manager’s average salary is $98,065 as of 2021, but the range typically falls between $85,019 and $112,866. Salary ranges can vary widely depending on many important factors, including education, certifications, additional skills, the number of years you have spent in the profession.

There are some common attributes of this role that our team at HappyAR has seen with our clients and can often be found in collections supervisor’s job descriptions.

• Highly effective interpersonal and communication skills and can produce or edit copy that is proven to result in faster collections.
• Highly effective organizational skills. Able to provide on-demand evaluations of staff, processes, technologies, and current results.
• Exceptional analytical skills and the ability to make rapid decisions
• Often have well over 5 years of experience with the management of collections staff members. Over 10 years of total management experience is not uncommon.
• Almost always has a bachelor’s degree and it’s not uncommon to see people in this role with a master’s degree including an MBA. For those with a high school diploma, starting in an account receivable
• Is well versed in company policies on communication with customer accounts, debt collection rules, collection processes and collection policies, and the management of a collections team.
• As with many finance-related fields, proficiency in Excel is very common.

Best Places to Find Full-Time Collections Manager Jobs:

• Indeed
• LinkedIn
• Glassdoor
• Google for Jobs
• CareerBuilder
• Monster
• FlexJobs
• LinkUp
• SimplyHired
• ZipRecruiter

How a Collections Manager Can Benefit From Accounts Receivable Technology Like HappyAR:

• The manager can have complete visibility into all collections activities being performed by the team. This visibility can extend to executive management, the sales team, and even select external vendors. The collections manager would serve as the administrator and can adjust who can see what in the account.
• There’s an extensive library of proven workflows and communication copy that can be quickly customized to fit the collections manager’s organization. This saves a lot of time and training resources when new associates are needed. They can simply be trained on using a system like HappyAR and they are able to start safely communicating with clients right away.
• These workflows have custom triggers that adjust actions based on what the recipient does. For example, if an email is opened, but not replied to, a follow-up is sent two days later.
• Workflows automatically end when a credit card, ACH, wire, or paper check payment is updated in the accounting system or can be manually paused or completed.
• The collections manager will now have a fully exportable activity audit trail that can be sent to collections companies and your law firm for the most challenging debts.

Additional benefits:

• A collections manager will have a bird’ eye view of the entire past due invoice workload. They can easily track historical performance and see what may need additional efforts.
• Because a collections manager is typically involved in technology purchases related to that function, seamless integrations are super easy. HappyAR integrates to the best of the best FinTech to give your accounts receivables a big boost. Most accounting, ERP, CRM, and invoicing systems connect with HappyAR and pull data over automatically. This eliminates redundant data entry from team members and helps to keep everything automatically updated around the clock.
• The same is true for communication technology. HappyAR also integrates with major email providers and continues to add integration functionality to voice and social media communication channels creating a seamless omni-communication channel.

HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables work. We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.