Why Your Company Should Use Electronic Billing

When one of Victor Bousso’s customers phones in an order for audio equipment to Sound Factory, Bousso goes online and logs on to his electronic billing service. He types the customer information into a form and, assuming the charge to the customer’s card is approved, schedules the item for shipment. One thing he doesn’t do is print out an invoice and stick it in an envelope to mail.

For the past two years, Bousso has used a billing service that handles invoice delivery for him, sending the “paperwork” in an e-mail. “It’s a note that says your card is scheduled to be debited this amount by Sound Factory,” Bousso says. “They get that e-mail instantaneously.”

Saving time and trouble is just one of a host of benefits of electronic billing, says George Roach, a systems specialist in electronic billing and payments at utility company Con Ed and a member of the Electronic Payments Association. Sending bills electronically reduces paper clutter, improves cash flow, protects the environment, and even protects against fraud, he says.

“Studies have shown that identity theft is much more prevalent in the paper world than in the electronic world,” says Roach. The reason is that it’s easier to get access to a paper statement or bill, by means as simple as pulling it out of an unprotected mailbox, than it is to hack an electronic record. “On the electronic end, all the processing is in a safe environment,” Roach notes. “Consumers use their passwords to view their bill; so there’s more safety and control.”

Electronic billing also improves customer relations, retention, and profitability. That’s according to a study commissioned by Fiserv, which provides electronic billing and payment services to financial institutions. The 2008 analysis of 8 million telephone company customers showed that those who had paperless billing were 12.5 percent less likely to leave for another provider, were 35 percent more likely to pay their bills on time, and purchased 20 percent more products.

Despite its benefits, smaller firms have been much slower to embrace electronic billing than large ones. Lack of awareness is the primary reason, says Steve Roderick, founder and chief executive officer of Gotobilling.com, a provider of electronic billing and other services to small businesses.

“The small business owner doesn’t typically understand that what these Fortune 2000 companies are doing to collect money is also available to them,” says Roderick. “They think it’s in that upper realm. But it’s actually quite easy.”

Roderick says electronic billing should be considered by almost any company that has or wants to have a merchant account allowing them to accept charge cards and other cards as forms of payment. While big firms like Con Ed have their own staffs devoted to the technically challenging task of running the internal IT systems that manage electronic billing, small companies almost always hire third-party services such as Roderick’s to do it for them.

These services are typically Web-based, and the user doesn’t need special software or hardware to access them. “Basically all it takes is a basic computer with a browser,” says Roderick. “We’re even doing this on iPhones now.”

Like Bousso, a merchant logs on to a Web site to type in or upload a file with the information about the transaction and begin the process. That process usually involves considerably more than sending an invoice. The Web-based service oversees tasks ranging from initial card authorization by the issuer’s network on card transactions to sending e-mail alerts to the merchant if an invoice is past due. The result is that what used to be a paperwork hassle turns into an important management tool.

A company that sends as few as a couple dozen invoices per month could be a candidate for electronic billing, Roderick says. Even companies with smaller volumes of bills could profit from electronic billing if their typical transaction is a large one.

The cost for the service is manageable for even the smallest of firms. Entrepreneurs with smaller numbers of transactions can sign up for monthly fees that are as low as $10 a month. Services offering an unlimited number of monthly bills are available for $35 or so monthly. And, because the services are Web-based, there are no outlays for purchasing software, upgrading hardware, installing new software releases, etc.

Roderick believes the end of paper billing will come about within five years, in conjunction with the end or near end of using physical money or paper checks to pay most bills. “You’re going to pay your employees and vendors electronically, and you’ll get paid electronically,” he says.

In addition to the business reasons for electronic billing, he says the trend is driven by governmental and societal change. When aircraft were grounded for days following the 9/11 terrorist attacks, the movement of paper bills and checks came to a halt. Concerned about the potentially disastrous effect on the national economy, federal security officials put their weight behind improving electronic transmission of transaction information.

In addition, many younger people have grown up accustomed to using cards for almost all purchases, including commercial ones. “Kids under 30 are getting bank accounts and starting businesses and not even getting checkbooks,” Roderick says.

For Bousso, electronic billing is not just the best way to go, it’s the only way he’s sent customers notices of charges since starting Sound Factory’s online sales operation at SoundFactoryPro.com two years ago.

“They either can bill it themselves through the Internet, or if they place an order over the phone with us, we bill them manually through the Web site,” says Bousso. For Sound Factory, when it comes to electronic billing, the future has already arrived.

Mark Henricks writes about business, technology, personal finance, and other topics from Austin, Texas. His work has appeared in The Wall Street Journal, Entrepreneur magazine, The Washington Post, and other leading publications.