Why does the issue of late payment exist at all?‍

Some view it as a question of psychology. Your customers might be busy, forgetful or at worst, selfish.

The smarter way is to view it as a question of technology. Then can you solve the problem of late payments at its source - payments themselves

I sat down with Xero’s Director of Global Financial Partnerships, Ben Johnson, to talk about how small businesses should make their payments solutions work better for them, and how Xero’s new integration with GoCardless benefits Xero users.‍

The number one reason small businesses fail‍

Ben doesn’t mince words when it comes to the biggest threat facing small businesses. “The number one reason small businesses fail is poor cash flow. To effectively manage cash flow, it’s critically important that small businesses have an efficient process in place to get paid.”‍

“The number one reason small businesses fail is poor cash flow.”

When you don’t have an efficient process in place to get paid, the resulting late payment has a knock-on impact on your cash flow. Xero’s Small Business Insights in the UK show small businesses were paid on average 6.6 days late, as at March 2021. When you have staff and suppliers to pay, consistently getting paid this late creates problems.

So what’s the solution? You could view it as a problem of psychology and go down the communications route. This can be effective, but it doesn’t address the source of the problem - your customers can only pay late because you’re giving them the option to.

At the core of the late payments problem are the methods you use to collect payment. Manual bank transfer - the de facto default way many businesses collect payments - leaves you with zero control of getting paid on time, putting it entirely in the hands of your customers.

“Customers who use online invoice payment platforms like GoCardless get paid up to twice as fast as those who don’t.”

Addressing the source of late payments requires choosing the right payments platform. Ben explains that Xero’s data shows customers who use online invoice payment platforms like GoCardless get paid up to twice as fast as those who don’t.

“Using the right invoice payment solution can save time, and importantly get money into the business faster. It’s a really foundational part of improving cash flow. It’s also a very practical step that a business owner can take to improve the health of their business.”

The payment method that gives you back control

Direct Debit is a household name in the UK, Australia and New Zealand, but it’s often pigeonholed as a payment method for things like utility bills, magazine subscriptions, or gym memberships.

This is an unfortunately dated view that seems to hang around. Direct Debit and its equivalents around the world, such as ACH debit in the US, are the solution to the source of late payments for businesses of many more kinds.

Unlike manual bank transfers, Direct Debit payments don’t rely on your customer choosing to pay you - they are processed automatically.

This is why GoCardless is built on Direct Debit, enabling small businesses to automatically collect bank-to-bank payments from their customers on the due date. No more chasing unpaid bills or wondering when you’ll get paid. And you and your customers don’t need to lift a finger.

GoCardless enables you to collect payment directly from your customer’s bank account when it’s due. No more chasing unpaid bills.

Ben tells us, “We find that most businesses who use invoicing in Xero have customers that they invoice at least a few times a year. I think small businesses naturally focus on building long lasting relationships with their customers, as it’s much harder to acquire new customers than retain existing ones.” 

Having a payment method that automatically collects on the due date means that you can focus on delivering a great service and not let late payments sabotage a long-lasting client relationship.

Xero’s new integration with GoCardless

GoCardless and Xero have been working together for many years. The new product integration reflects this partnership growing to a new level.

“We felt recurring bank payments were such a key way Xero customers could improve their cash flow, that building GoCardless directly into the Xero workflow would help our customers get more value from using the product,” says Ben.

“We decided to create a new GoCardless integration and make it an embedded experience within Xero. We launched an early version of this in March, which allows new customers to create GoCardless accounts, send authorisation forms, and collect payments all within Xero.”

“We decided to create a new GoCardless integration and make it an embedded experience within Xero.”

The new integration is the latest in a list of milestones Xero and GoCardless have achieved together. Including growing the GoCardless offering beyond the UK to Australia, New Zealand, the US, and Canada, and being honoured with several awards from Xero, including App Partner of the Year in both the UK and New Zealand.

Over the next 12 months you can expect to see more developments on GoCardless from Xero. As Ben reflects, “Our goal is to help small businesses get paid fast. We remain focussed on delivering deeply embedded payment experiences that make it easier for businesses to receive and manage payments in a way that suits their needs.”

How accountants and advisors can better serve small businesses

Accountants and bookkeepers are increasingly finding their roles transitioning into that of a business advisor, particularly within the app-centric Xero ecosystem.

Given the impact the right payment solutions can have on small businesses, and Xero’s large network of partners, we asked Ben his thoughts on this.

“I’d like to see both small businesses and advisors be more aware of the payment processes they have in place, and how well these serve them. We’ve seen that customers who take the time to digitise their invoicing and payments see significant improvements in their payment times. We also know there are a lot of small businesses who have the opportunity to improve their processes.”

There are a number of solutions to address the problem of bad cash flow; from forecasting apps to debt chasing and invoice factoring software.

Having visibility of your cash flow trajectory is useful, but payment apps are unique in giving you the control to change that trajectory. With a switch from manual bank transfers to Direct Debit, for instance, you can fix the issue of late payments at its source, rather than treating the symptoms with credit control.

As Ben goes on to say, “At Xero, we want to make this change as easy as possible for small businesses and their advisors, by building simple products that work well for their business. It’s another reason we decided to build a new GoCardless experience in Xero. It’s about reducing some of the complexity of using different apps to manage recurring bank payments.”

What’s next for Xero and GoCardless

Here at GoCardless, we’re beginning to roll out a new feature called Instant Bank Pay - a better way for you to collect one-off payments, powered by open banking. With manual bank transfer being slow and admin-heavy, and card payments being expensive and failure-prone, open banking technology enables Instant Bank Pay to step in as a competitive replacement.

Adoption of open banking technology is certainly on the rise. In the UK, a recent survey from Ipsos MORI found that 50% of small businesses are already using open banking-enabled services, which includes payment services. Most of these businesses said they had adopted open banking since the start of the Covid-19 pandemic. We can only see this trend increasing further.

Ben shares our enthusiasm, “With Open Banking, software providers are creating great experiences for customers using their bank account, and I think we’re starting to see that come to life in the world of payments. It’s exciting to see what the future holds here.” 

All we can say is watch this space!

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What about the original GoCardless for Xero integration?

If you started using GoCardless and Xero together prior to March 2021, you’re using the original GoCardless for Xero integration (previously called Direcli). This is an integration that GoCardless owns, and which will eventually be replaced with Xero’s new integration.

GoCardless for Xero currently has some features that will be making their way into the new integration in the coming months. All GoCardless for Xero users will be contacted by GoCardless with more information nearer the time. Until then we hope you continue to enjoy using GoCardless for Xero.

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GoCardless: Made for recurring payments

Founded: 2011

Customers: 60,000

Located: London, Paris, Munich, Melbourne, San Francisco, and New York City

Who uses GoCardless?: Professional services businesses (accountants, agencies, IT services, care services, consultants), membership services (clubs, gyms), and trades‍

Benefits for Xero users:

• End late payments
  When your invoice is due, payment is automatically debited from your customer’s bank account. Xero users get paid twice as fast using GoCardless.
  
• Lower-cost alternative to card payments
  Bank-to-bank payments cut out the costs of card networks, making for a more cost efficient way to get paid. Plus, automation reduces the costs of chasing payment. GoCardless lowers the total cost to accept recurring payments by 56%1.
  
• Popular with payers
  When it comes to paying invoices, Direct Debit is the preferred alternative to manual bank transfers for businesses in the UK and Australia. In the US, after credit cards, Direct Debit is the preferred way to pay invoices.
  
• Less bookkeeping
  Payments are automatically reconciled against your Xero invoices, saving you hours on admin.