How Payment Analytics Can Help Contractors Improve Cash Flow

How many business decisions do you make a day? Chances are, too many to count.

You can simplify the decision-making process by leaning on data. In fact, data-backed decision-making often leads to better results—more effective marketing campaigns, messaging that resonates, and better cash flow.

In this article, we’ll explore how payment analytics can help you achieve a predictable and steady cash flow for your contractor business.

First, we’ll explain what payment analytics are and their benefits. Then, we’ll share the steps to take to get started.

Next, we’ll give you some of the key metrics to track, specifically for contractors. Finally, we’ll offer four tips to help you overcome common challenges.

Make data your compass and deliver a payment experience your clients love. Here’s what you need to know.

What Is Payment Analytics?

Payment analytics give you data about your payments, billing, and financial processes. This isn’t just about numbers. It’s about painting a meaningful picture of what’s working and what’s not.

How do analytics work?

The first step is data collection. This happens in your payment software.
The next step is asking a question. This gives the data context. For example, you might be wondering what percentage of your invoices are paid late.
Finally, your software gives you a report. It crunches the numbers, puts the data through a formula, and gives you an answer via a report. You can also do the math yourself, depending on how complicated your question is and the capability of your software.

Payment analytics are like a map. You know where you want to go. Data shows you whether or not you’re heading in the right direction.

This is why keeping track of them is so important as a contractor. Without cold, hard facts, you’re left with assumptions. These assumptions could be wrong, and if you use them to shape your improvement efforts, you’ll wind up wasting time and resources.

According to Forbes: “Data-led companies are more innovative, create new offerings and find ways to optimize processes to improve efficiency and reduce costs.”

Those are goals worth aiming for.

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Benefits of Payment Analytics for Contractors

Make payment analytics a core part of the decision-making process for your contractor business and get these benefits:

Find Payment Trends

A one-time payment hiccup isn’t something to worry about. But something that’s negatively impacting every payment you process demands your attention.

With analytics, you can find these payment trends. You can dig down and diagnose their cause.

Let’s say you check your analytics. You notice that a large percentage of payments that come via an online payment link are made late. What’s going on?

This finding prompts you to check the payment terms on your invoice. Maybe they aren’t clear. Perhaps there’s a typo, or the link isn’t working. You can then fix the problem.

Predict Cash Flow Patterns

A steady and reliable revenue stream helps you meet your financial responsibilities. You can pay your staff and bills, purchase materials, and invest in your business’s future.

You can use payment analytics to predict your cash flow. For example, you might check your analytics and see that 75% of clients pay on time. The remaining 25% pay late.

This insight can shape your cash flow forecasts and inform your budgeting.

Improve Payment Process Efficiencies

Analytics can optimize payment processes and deliver game-changing efficiencies. Here’s how:

Data gives you a better understanding of preferred payment methods. You can even see which demographics use which payment options. With these insights in mind, you can invest more in popular methods. That might mean purchasing hardware or prioritizing integrations.
Analytics can flag unusual payment patterns like inconsistent locations. These could indicate fraud. You can then be proactive and investigate the issue or bring it to your processor’s attention. You stay one step ahead, mitigating the risk of downtime.
Some payment processing software can use analytics to automate reconciliation. It can match payments with invoices without any manual inputs. This saves you a huge amount of time. It also reduces human errors, which can lead to delays.

Reduce Payment Failures

Payments can fail for a whole host of reasons. Your client might not have enough funds. The card might be declined because it’s expired. Or maybe there was an error in processing.

Analytics can help you get to the bottom of payment failures. From there, you can adopt targeted measures to reduce them. For example, you might set up an automatic failed payment alert.

Enhance Client Management

Data can shine a light on what your customers prefer and how they tend to act.

For example, you can look at analytics to see which type of payment method is the favorite. You can even find out when clients are most likely to pay.

Use this to shape a more personalized payment experience. This strengthens your relationships, wins trust, and even encourages repeat customers.

You can also leverage analytics to refine your communications around payments and related issues. If you have a lot of delayed payments, for example, you might rework your payment terms. You might simplify your language or change the way they’re formatted.

After making the change and waiting a few weeks, you can revisit your analytics. You can see whether your new communication approach reduced payment delays.

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How to Get Started with Payment Analytics

Ready to get started? Follow these steps.

Step 1: Choose the Right Tools

First, you need a tool to track your data and use it to generate actionable analytics. You have options:

Your payment processing software or invoicing software might offer some sort of reporting function.
You might upgrade your software to improve or extend your access to analytics.
You could take raw data from your existing software and uncover insights yourself using simple formulas.

Advanced software with powerful reporting capabilities makes life easier. It may be an upfront investment, but consider the long-term benefits.

Pro tip for contractors: Before investing in new software, check out the analytics features in your current tools. You should already have access to basic reporting. This could be enough.

Step 2: Set Up Key Metrics

Once you’ve chosen how you’ll track your analytics, it’s time to get set up.

You’ll need to decide which metrics deliver the most value to your business. Check out the section below for more guidance.

Keep in mind there may be limits to what you can and can’t track. It all depends on the data your software or analytics tool has access to.

Pro tip for contractors: Make sure to pay attention to the metrics that have a direct impact on cash flow. These inform smart budgeting and help keep your business finances healthy.

Step 3: Integrate Analytics with Your Payment Tools

Speaking of access, this is where integrations come into the fold.

By integrating your software, you enable data sharing. Your different systems can communicate with one another, which means you don’t need to reenter data manually.

The actual integration process will depend on your software. If you’re unsure what to do, it’s best to reach out to the support team for help.

Pro tip for contractors: Sometimes, you can use plugins or add-ons that simplify integration. These make the process quicker and easier.

Step 4: Review and Analyze Your Data

Now comes the important part—actually reviewing your data.

Make this a habit. Pop it into your calendar and set a reminder to check your analytics at regular intervals.

There might be a slight learning curve, but once you get the hang of your tracking tool, it should only take a few minutes.

Pro tip for contractors: Schedule your data review right after major billing cycles. Examples include month-end or project completion. That way, the insights are fresh and actionable.

Step 5: Make an Action Plan

Looking at your analytics is only the first step. Real change happens when you act on your findings.

So, if you spot any trends or identify any problems that need immediate attention, take note. Consider the adjustments you could make to improve things. Then, come up with a plan. 

It’s a good idea to revisit your analytics periodically after the change has been made. That way, you can see whether or not it has the intended effect.

Pro tip for contractors: Focus on one or two immediate changes you can make that impact cash flow. Keep the scope narrow and realistic. Small changes add up over time and allow you to make continuous improvements to your payment process.

Key Payment Analytics Metrics for Contractors to Improve Cash Flow

Here are some of the key metrics you should track as a contractor that have the potential to boost your cash flow:

Days sales outstanding (DSO) measures the average number of days it takes for your business to get paid after sending an invoice. A lower DSO means faster cash flow.
Payment frequency and patterns show you how often clients pay and if they stick to the same schedule, like monthly. Use this to anticipate your cash flow.
Average invoice value calculates how much you charge your clients on average. This, paired with your profit margin, helps you stay financially viable.
Late payment rates tell you how many clients pay you after the invoice’s due date. If you have a high rate, you might need to edit your payment terms. For example, you could add an early payment discount or charge a late fee.
Client payment methods track the payment options your clients use to pay you. Use this insight to streamline and simplify your payment process.
Invoice dispute frequency reveals how often your clients contest or challenge your invoices. If this happens regularly, your invoices might not be clear enough.

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4 Tips to Overcome Common Challenges in Payment Analytics for Contractors

Payment analytics are powerful, but they’re not without their challenges:

Data might be inaccurate or inconsistent. Overcome this by integrating your software with an analytics tool. Or use the analytics built into your payment or invoicing software.
Data might be complex and tricky to interpret. Overcome this by using the reporting functions in your software. These analyze your data and give you meaningful insights.
It might not be clear how analytical findings help you reach your business goal. Overcome this by focusing on a few core metrics that relate directly to cash flow. That way, you can cut out the noise and spend time on what matters most.
Data is subject to security and privacy rules—you must follow these. Overcome this by ensuring your software or tool is compliant with standards like PCI-DSS.