Minimizing Revenue & Receivables Leakage
© 2004 Sanjay Srivastava. All Rights Reserved.

How to be Proactive in Driving Revenue Assurance

Like the nonstop drip of a worn out faucet, revenue leakage - steady, incessant and ultimately costly-can only be stopped completely by fixing the leak. Organizations today are at risk of losing a significant percentage of gross revenues because of leaks, gaps and undetected errors in their business processes. The sales order management process and the entire quote-to-cash cycle have become increasingly complex, due to rising sales volumes, intricate product pricing and configurations, fast-changing promotions, and the impact of the internet. Fragmented across disparate systems, applications and organizational boundaries, the quote-to-cash cycle and associated processes are now fertile ground for profit loss in the form of late pays, charge backs, write-offs, penalties and unearned discounts. Often errors aren't even detected till much after the fact resulting in revenue erosion. Even when errors are detected, it's usually too late to fully recover the lost days sales outstanding and productivity costs.

It's easy to see why the leaks come about. Quote systems, contract management systems, order management systems, product configuration tools, enterprise resource planning systems - the quote-to-cash cycle rests on a string of disparate transactional systems and applications. The gaps between them are typically bridged by manual processes and numerous individuals in different reporting hierarchies. Consequently, the potential of inconsistencies and errors abounds upstream in the quote-to-cash cycle. An unearned discount here, a mis-priced product there, erroneously providing free shipping when it's not called for in the contract, a wrong tax code - these types of incidents add up and, worse, are frequently repeated. And it only gets worse each year as sales volumes rise and processes become even more complex over time. No wonder Finance loses sleep - plugging leaks instead of focusing on higher value added initiatives.

Unlock capital, stop revenue leakage and reduce operational costs.

Effective revenue assurance rests on business policy exception detection and resolution, continued process improvement initiatives based on actionable visibility to transaction data, and automation of receivables and collections functions. Put these three key elements together and significant capital can be unlocked, no matter how complex an organization's quote-to-cash cycle may become.

It is important to think of a holistic solution to this problem. Forward thinking companies use a combination of order-to-invoice quality and collections automation technologies to arrest this growing source of profit erosion. It's imperative to identify inconsistencies and errors in orders and invoices before they flow downstream and plays havoc with profit margins and customer relationships. Simultaneously, it's best practice to enable click-through, real-time visibility into forecasts, up-to-date status across various reporting hierarchies, and all events and transactions as they take place throughout the business process. And finally, it's important to automate the process of managing late payments, resolving disputes, and accelerating collections to reduce DSOs and operational costs.

Proactively identify exceptions and stamp out revenue and capital leakage.

The first step towards this goal is to centralize and correlate all order-related information. This includes quotes, purchase orders, change orders, and sales orders and other key transactional documents as they are generated, and as they flow across various transactional systems and organizational boundaries. The next step is to provide a consistent, easy-to-use, and simple-to-understand interface to this information in order to enable holistic visibility into the process, end to end. This ensures that all data and transactions that fuel key business processes are accurate, and that the processes themselves are auditable.

Once data and transactions have been correlated, transaction monitoring and exception identification can take place. Exceptions occur because business data, rules and policies are applied improperly or not at all. In a dynamic environment, new policies are often inconsistently documented and are difficult to keep up with changing policies and contractual commitments. An automated business rule capability with algorithm-based problem detection and exception based reporting can monitor and highlight those exceptions likely to result in late pays, charge-backs or unearned discounts. These rules can include pre-set tolerances for automatic approval, and can also trigger alerts to warn of developing problems. And the key process owners can configure the rules directly, without having to go through a centralized and protracted IT process.

All this enables exceptions and issues to be proactively address before they flow down stream and otherwise cause revenue leakage, high DSOs, customer dissatisfaction and become costly to resolve.

Drive continuous process improvements and achieve best-in-class performance.

In the spirit of ISO, Six Sigma and other business quality improvement initiatives, the insights derived from having actionable visibility into the quote-to-cash cycle can be marshaled to drive continual business process improvements. It is not enough to simply detect and resolve problems within the quote-to-cash cycle. It's just as important that once a problem is detected, to identify, analyze and eliminate its root cause.

In turn, process improvements have a positive effect not just on cash flow, but also on employee productivity and morale, and even on customer relations. No customer likes to be pestered over persistent order and invoice quality issues, and cutting off revenue leakage and sources of charge-backs and penalties helps keeps customer relationships on a higher value-added plane.

Automate your receivables and collections management efforts to reduce DSO.

Equally important is addressing the mud that comes with the leak. Unaccounted for discounts and deductions, unreconciled charge-backs and penalties, and significant delays in payments - all rack up costs in revenue leakage and locked-up working capital. Worse still, the receivables and collections teams end up cleaning up the mess with severely inadequate tools. Too often multiple enterprise resource management systems with different data hierarchies mask easy visibility to the total positions. Much of the actual forecasting, prioritization and communications work in collections is done manually - using individual spreadsheets, pencil and paper. As economic environments change, consistently and immediately changing credit and collections policies is tricky at best, and auditability of the entire process leaves much to be desired in the world of increasing focus on compliance and governance.

These issues can be solved and their resulting impact on high DSO and high operational costs can be eliminated through the use of collections management tools. Process automation technologies for collections management can drive dynamic customer segmentation and auto-application of collections strategies - with automated communication, action-items and comprehensive audit trails. Various stake holders can access secure compartmentalized information across enforceable hierarchies - at transaction, account or portfolio levels - in real time. And an intuitive user-interface, easy to access reports and KPIs, and a workbench to facilitate inter-departmental communication can take over much of the heavy lifting from the collections teams - enabling them to focus on higher value-added and strategic tasks.

Real value in the real world - a reality today.

In order to prevent revenue and receivables leakage, an increasing number of forward looking organizations are implementing solutions that can arrest this problem now. Indeed technology solutions that monitor and help fix errors and exceptions in the order to cash process, automate the receivables and collections management process, and deliver real-time click through visibility across the financial transactions are delivering tremendous returns - in revenue assurance, unlocking working capital, reducing operational costs, and improving customer interactions. And finance professionals in these companies are spending more of their time working on strategic finance initiatives that deliver higher value-added to their corporations, rather having to plug the leaks with their fingers.

About the Author: Sanjay Srivastava is COO for Aceva, and works directly with many of Aceva's global clients, spending significant time in their direct and outsourced finance and sales operations departments - helping them benchmark and catalyze operational efficiency, implement technology-enabled solutions, and re-engineer processes around industry best practices.

Reprinted with permission of The Covering Credit Newsletter, 10/1/04 Edition.

Provided by anscers Encyclopedia of Credit