Business is not all about sales, unfortunately costs are just as important. I often find that clients put great systems in place to record and analyse sales but treat their costs as the poor relation. This is understandable as all business owners love making sales and hate paying bills! I have some tips to help SME owners treat their costs with the same respect as their sales using new technology.
The old-fashioned way:
I’m not going to go into any detail here but these methods involve filing, organising, listing etc. and the end product is usually a list of all invoices by date and a few lever arch folders stuffed with invoices marked with sequential reference numbers. Once the end of year accounts are done these are thrown into the attic and kept for six years in case the Revenue want to have a look at them. During the year filling these folders and recording the costs involves opening envelopes, marking invoices for payment, categorising them, typing in details on a spreadsheet or PC based bookkeeping package, filing the invoice away and pulling it out again to mark it “Paid”. I’ve been there and done this, it’s a lot of work and time and if you want to check an invoice from last year it is a big job.
The smart way:
There are a number of companies providing services for recording your costs. It can be as simple as snapping a picture of the invoice from your smartphone and you are done. Really, that is all it takes! Of course to get to this level of efficiency there is a bit of setup involved and you will have to be using a good accounts package but, as I will outline below, this is easily done and is not very expensive.
Choose an online bookkeeping system (if you don’t have one already). There are at least 10 providers in UK/Ireland but, in my opinion there are 4 clear leaders Xero, SortMyBooks, FreeAgent and Kashflow (see previous blog post no. 3). Most of these systems have the ability to link in with invoice capturing software so that when you snap a pic of your invoice it is categorised and automatically appears in Accounts Payable complete with data such as gross, net, VAT, date, due date and even a picture of the original invoice attached, genius! The bookkeeping packages typically cost around €30 per month.
Choose a cost capturing software package. There are a few, my personal favourites are Receipt Bank and Shoeboxed although there are a number of providers. These are cloud based applications that also have smartphone apps. You can submit copies of your invoices in many ways: Email an attachment, take a picture using the smartphone app, save in a Dropbox folder which is synced with your provider automatically (my personal favourite option, more about this later) and finally pop all your invoices in a FREEPOST envelope and post to Receipt Bank for processing (only available in the UK at the moment but I’m told they are looking to introduce this to Ireland in the near future). The monthly cost is about €10 per month for the non-postal options.
Sign up for e-billing with as many of your providers as possible. Many suppliers offer this free service from utility/phone companies to office stationery suppliers and you would be surprised at how many local suppliers would be happy to scan their invoice and e-mail it to you rather than post it. This will cut down on the number of invoices you will have to scan yourself or take a picture of with the smartphone app.
Although most businesses already have a scanner built into their photocopier, if you find yourself scanning a lot of invoices each month I would recommend investing in a hand-held document scanner. These allow you so place the invoice on the desk and simply roll the scanner over it, it saves a lot of time and is handy for odd-shaped receipts that might get caught in a document feeder.
How it works
Once you have completed the above steps, here is how it works in practice. If you receive an invoice via e-mail simply forward it on to the address you are given with the attachment included. The invoice recording software uses a combination of Optical Character Recognition (OCR) and human review to interpret the invoice and pull the data from it. What I really like about Receipt Bank is that it pulls a list of your expense codes from your accounting package and allocates the cost to the category that matches best. A few days later the invoice appears in your Accounts Payable as a “Draft” invoice with the picture attached awaiting your approval. If they have put the cost into the wrong expense code you can quickly correct this and it will remember for next time.
There is no need to maintain a paper copy of the invoice as Revenue have confirmed that a scanned copy will suffice. Your bookkeeping system will now have a fully searchable database of invoices with copies attached for you to review… even in many years time. It also populates the due date field so you can keep track of when to pay suppliers.
I personally use Xero and Receipt Bank and find the latter very accurate indeed. Anytime it misclassifies a new invoice, once I correct it, it never gets it wrong again. I also have my Dropbox folder synced with Receipt Bank so when I drag a PDF file into the folder, it is automatically sent to Receipt Bank for processing and I have a copy saved in my Dropbox folder as well.
I have been using Xero and Receipt Bank for about 8 months now and it has really exceeded my expectations. It saves our office so much time and I love having a picture of all invoices within my accounting software so I can view them effortlessly at any time from anywhere. There are a few small issues like when an invoice has two vat rates Receipt Bank can only recognise one but this only takes me a few seconds to correct. There are often problems with till receipts like lunch or petrol from a filling station, these receipts are small and generally don’t split out the VAT or may have other non-business items (like that packet of Tayto’s!) so I find it’s easier just to manually enter these myself.
I have found that business owners or their bookkeepers spend a huge amount of time processing invoices, thankfully it no longer has to be that way with new, cheap online technology. For a fee of less than €40 per month you have a bookkeeping and invoice processing system that will save hours of admin work and lead to more accurate records with copies of all your invoices at your fingertips and the boring task of sorting through invoices each month is gone. This information will empower you to make better and faster business decisions.
What you need
Subscription to an online accounting software provider (in my opinion all SME owners should have this anyway).
Subscription to an invoice processing provider, like Receipt Bank or Shoeboxed.
Sign up for e-billing with as many suppliers as possible.
A digital scanner.
Where to get it
There are many Online Accounting packages available, a google search with list most or see my previous blog here.
Sign up for a new Dropbox account here.