If you follow the FinTech Start-up scene in London, you cannot fail to notice the large number of start-ups in the payments space.
A quick scan of the FinTech50 2014 list shows that twelve of the fifty firms focus on payments. These are AcceptEmail, Bottomline, Clear2pay, dovetail, GoCardLess, IXaris, Klarna, Lemonway, Paymill, Pingit, The Currency Cloud and Transferwise.
And I know there are many others not on the FinTech50 list.
Too many firms competing for the same thing? After-all as consumers we are all used to online payments with Credit cards, Debit cards, PayPal, …
This article will look at our experience of invoicing and payments as a B2B company.
First some background on Clarus.
We are a UK based firm that provides cloud-hosted applications and services to Capital Markets firms (Banks, Brokers, Exchanges, Hedge Funds), which are predominately in the US.
On the purchasing side, we have an efficient process as all bills are received by email, entered into Kashflow (our accounting system) and paid electronically using Faster Payments (UK Banking service) or Debit Cards. We have few complaints here.
Which brings me to the sales side, where we have many complaints.
When we launched our first online service (SDRView), we decided to offer self registration and payment with a credit card and chose Stripe as the vendor to do this.
That has proved a smooth experience. The integration with Stripe APIs was quick and straightforward. Our customers self-register for a 14 day trial for a specific product plan at the end of which they can enter their credit card details and be charged monthly. Invoices are automatically emailed to them, Stripe takes care of automatic re-tries in-case of failures, transfers the funds to our bank account after deducting a 2.4% fee, automatically cancels subscriptions that are not paid and renews ones that are.
No complaints with this.
However we knew that not all customers would be able or willing to pay with credit cards.
Consequently we also offered payment upon invoice on a quarterly basis, thinking that the increased administration overhead would be covered by the 3-month period.
Now we have 30+ customers, we can see how wrong we were on this.
Firstly as the majority of our customers did not chose the monthly credit card option.
It seems that either $100 per month is a psychological barrier or that the use of corporate credit cards for software subscriptions are a thing of the past; certainly in the the firms we sell to.
So the focus is on our invoicing and payment collection process. This works as follows:
- We set-up the new customer in Kashflow, generate an Invoice, which is emailed
- Most customers are ok with email, some require faxes(!), some have a web process
- Payment is in USD to either a US or UK account, within a 14d or 30d period.
- US customers require us to fax or physically post(!) a W-8BEN form
- We monitor overdue payments in Kashflow and send reminder emails
- Payments received are marked as such in Kashflow
- Subsequent quarterly invoices are generated
Sounds reasonable, so why the complaint?
Well as always, when it works well as it does for many customers, there is nothing greatly wrong with the process.
The problem is when it does not, which is much more common than we expected.
The main ones being.
- When there is a blockage in the customer’s process, we are not alerted. It is only when the payment is overdue and we chase by email or phone, that someone checks and explains why it has not been paid. Usually reasons like still needs a missing internal approval or missing some information we had sent but not received by the correct department
- US firms seem to not automatically pay electronically, so a number post us checks! When these are to our US address and need to be deposited into our US account, the delay is not too bad. However we have had two cases of a check being mailed from the US to our address in the UK! Something we had not imagined would happen in 2014.
- We need to re-issue the invoice to add internal details (address, purchase order, etc) before it is processed correctly
- USD invoices to UK customers need to have the VAT shown as GBP Equivalent. (Once learn’t, not forgotten).
- Electronic payments arrive in our account with cryptic details, meaning we have to rely on matching the amount to possible invoices to identify the one that has been paid.
- Deduction of transfer fees ($10, $25) from the invoice amount, without any explanation. (I hope this is not our bank doing this).
- Currency conversion rate used to get payment into GBP (not looked into this very carefully as FX P/L is part of our world, but I would expect we are not getting a great rate).
In general, for us, it is not a case of we are not going to get paid and have bad debts (as would be the case in B2C).
But when invoices are overdue by 30 days or more, I cannot help the feeling that we are improving the cash-flow position of large financial firms and they could do a lot more to facilitate timely payments.
However more than that, the time spent on our part in contacting customers, chasing, sending faxes (why?) and posting original documents (double why?) is such as waste. Being a small firm we don’t have a dedicated person or department to do this. It falls on management that know the customer, which is a distraction to say the least.
So how do we plan to address?
The nuclear option of turning customers off until the invoice is settled (which is in our contracts) is not one that we feel is appropriate.
The option of charging interest on late payments, is either not agreed to in our contracts and even if it were would just be another administrative burden for us with little up-side.
So we are considering the following two paths.
First reduce our admin overheard by moving to semi-annual or annual invoices and starting to align dates so all invoices are month-end rather than specific dates.
Second start looking to out-source parts of the process (new customer set-up, regular invoicing and monitoring).
Any FinTech Start-Ups out there with ideas on how to solve?
Please send us an email. (Faxes will not be accepted, we don’t have a number, letters might be read or junked)
Better still, target US financial firms and ask them about their vendor on-boarding and payment process.
Then talk to both of us with a solution.
Perhaps I now understand why the payments space is ripe for disruptive competition.
Lets hope for rapid change in B2B payments.