Closing a sale doesn’t always mean cash in the bank. For too many businesses, sales activity generates less realized revenue than it should. Traditional order-to-cash (O2C) internal control practices, designed to detect or prevent revenue reporting issues, often focus too late in the process, are reactive instead of proactive and are not focused around operational issues that can generate revenue leakage.
By combining traditional O2C best practices with a revenue assurance (RA) perspective you will create a new mindset around revenue realization discipline. Following an O2C-RA approach to business process design allows businesses to maximize revenues and margins by realizing more revenue from the sales for which they have already incurred variable sales costs. Simply put, O2C-RA equates to more profit from the sales you’re already making.
O2C-RA discipline allows a business to drive revenue improvement representing a long-term annuity. Strategic O2C-RA focus contributes continuous top and bottom-line performance improvements by optimizing performance across the entire revenue life cycle.
Benefits of establishing an O2C-RA focus
What will you gain by adopting a strategic focus on O2C-RA?
Common O2C-RA Issues and Best Practice Solutions
- Net Revenue growth without increases in variable acquisition or retention costs
- Fewer systemic failures, which drives down billing errors, disputes and bill adjustments
- Increased customer satisfaction, which reduces churn and drives down retention costs
- Improved front-end sales process integrity by preventing unapproved terms, discounts, commission gaming and other abuses
- Reduced fraud and bad debt
- Reduced reputational and litigation risk
An effective O2C-RA approach involves in-depth assessment of current processes, investigation and analysis of areas of concern and design and integration of solutions across the entire revenue cycle, from product/offer design to customer care and loyalty. Following are some key O2C-RA issues and solutions.
Warning signs and common triggers of O2C-RA issues
In addition to known O2C-RA concerns, certain business issues or conditions are a good reason to review your O2C-RA status. Consider the following questions:
20 revenue cycle questions every CFO should be asking
- Do your highest compensated sales representatives generate your lowest margin deals?
- Have you recently completed, or are you in the midst of, a merger or acquisition? Make sure to include systems and processes supporting O2C-RA in your acquisition integration calendar. This is a critical time to review overall O2C-RA practices.
- Is your financial performance against key benchmarks for your industry not meeting expectations? Poor comparative metrics such as sales closing percentage, bad debt, poor margins or under-performing average revenue per unit/customer [ARPU], reflect unresolved O2C-RA issues.
- Have you undergone recent significant organizational or systems changes? Restructuring, leadership changes or new or upgraded ERP or O2C-RA supporting technologies (e.g., fraud/credit scoring, billing, CRM) can trigger O2C-RA issues or suggest there may be opportunities to make improvements.
- Are you facing regulatory changes or legal scrutiny? Regulatory changes like the new revenue recognition standard can impact your O2C-RA efforts. In addition, litigation arising from disputes with customers or sales channels often originates from unresolved O2C-RA issues.
Answering the following questions will help you determine whether you’re getting the revenue you paid for.
- Do our revenue assurance functions (i.e., billing /fraud management/credit/collections) have a seat at the table in the development cycle for new products/offers? This will help ensure we are able to bill correctly and that other potential revenue realization risks, including payment acceptance risks are identified.
- Are the RA functions part of our “go / no-go” decision for final product launch?
- Do we encourage critical reviews of commissions, profit sharing or sales spiff structures, including consideration of potential risks of gaming or manipulation by internal or external sales channels?
- Do we monitor channel partner performance for indicators that they are manipulating our compensation programs or selling at proper, approved terms?
ORDER RISK SCREENING
- Do our QA controls over order-entry or automated provisioning/posting of orders into billing systems ensure accuracy and completeness of orders and invoicing?
- Do we experience high rates of customer disputes linked to incorrect orders, wrong SKUs or other errors issues originating a the point of order capture & entry?
- Are our sales reported gross – or net of sales discounts and promotions in our internal reporting (i.e., does management have clear visibility to volume and net profit impacts of discounting activity)?
- Is our discounting activity reviewed and approved, (and/or monitored at a product, market, channel and sales representative level) to enable rapid detection of unauthorized or unplanned revenue dilution?
- Are losses due to fraud or bad debt rising, or are they higher than peers in our industry?
- Do we experience high sales order loss or abandonment rates (due to credit and fraud scoring) that could indicate our credit and/or fraud rules are not optimized?
- Do we closely monitor our frequency of customer billing disputes linked to incorrect pricing/rating or systemic billing errors? If so, are these rates consistently high or rising?
- Do we have controls that ensure all billable activity is accounted for and/or that exceptions are being monitored and corrected?
- Do we bill on time? What is our experience with late billing and what revenue impacts do we feel when bills are late?
COLLECTIONS / RECEIVABLES MANAGEMENT
- Do we perform critical reviews of credit card decline rates to understand root causes across card decline reason codes, issuing banks or other highlighted decline patterns?
- Have we optimized our payment acceptance capabilities, taking advantage of all possible payment types available in our markets, including those used by unbanked or underbanked consumers?
CUSTOMER CARE / LOYALTY
- Have we subjected our collections process to independent review to ensure that all past-due accounts are actually receiving the collections treatment prescribed by management?
- Have we established separate, more rigorous, collections treatments for higher risk accounts?
- Are refunds reconciled against credit card chargebacks to avoid duplicate refunds?
- Do we monitor, report and measure billing adjustment activity performed by each customer care representative and do we have systemic controls limiting their ability to apply credits?
- Do we utilize customer lifetime value criteria in determining eligibility for retention offers?
Advances in data analytics and other technologies enable new, creative and powerful options for exploring your O2C-RA effort and uncovering opportunities to realize greater return on your ongoing sales and customer investment. Every CFO should consider the following questions to discover if their business is not fully realizing the revenue it has earned.
Director, Financial Management
+1 425 214 9839
Director, Financial Management
+1 248 415 6017