In working with hundreds of entrepreneurs in their accounting function, I’ve noticed that there are fewer business today who use invoices as the primary means to bill and collect payments from customers compared to 5 or 10 years ago. The simple reason for this is that credit card processing has grown immensely and thus replaced the need to generate traditional invoicing. 2/3rds of all consumer and business transactions in the U.S. were made with credit cards. The number of transactions processed via credit cards in the U.S. has grown 35% over the last 5 years.
The biggest benefit to killing invoicing has been in eliminating collections of outstanding invoices. The cost of having slow paying customers and the effort required to track them down and get them to pay can be crushing for entrepreneurs. So many entrepreneurs have stories of the broke customer who suddenly can’t pay the bill, or the big corporate customer who pays when they want to, or the government customer with a billion hoops to jump through before getting paid. Credit card fees suck, but taking a 3% haircut on revenue and not having to deal with these invoicing headaches may be worth it, in many cases.
One of the consequences I’ve seen in the death of the invoice and the move to credit card payments has been the inability of accounting systems and credit card companies to get on the same page from a reporting standpoint. Consider this…..if you were a business accepting credit card payments 5 years ago then you were probably a restaurant or retailer…..someone ringing up a credit card transaction at a point of sale cash register. Today it’s not just B2C companies accepting credit cards, it’s all companies…..B2B included. A restaurant is never going to push all of the details about a customer and their order (Joe Smith ordered 10 hot wings and a Budweiser) all the way into their accounting system. The accounting systems weren’t built to handle that level of detail and they’d deal with them in batches. If they wanted to go down into the transactional level details, the point of sale system was a much better place to do this. But what about that software company that bills their clients via credit card. Where do they go to get customer billing and payment information? The accounting system still isn’t configured to handle detailed credit card information and there’s no point of sale machine their using. Ever tried digging into a merchant account statement or logging into their online reporting? It’s horrible, trust me.
With every challenge like this, someone’s going to rise up and find a killer opportunity to solve this credit card processing/accounting system integration issue. Will Quickbooks Online or Xero be the ones to lead the charge? Will it be one of the newer card processors like Stripe or Braintree? Or will it be another solution to bridge the gap? Regardless of this challenge, I’m glad invoicing is dying. Collections of accounts receivable is aweful and these integration issues will get solved…..I just hope it’s sooner than later.