Excel is the world's top accounting system, but spreadsheets can be burdensome to accountants and financial analysts with traditional revenue cycles. They can become even more so with recurring revenue and the many other additional sources of revenue open to digital businesses. Excel also leaves most of the work of invoicing clients, collecting payments, and tracking the entire revenue cycle in accounting to financial professionals.
Automating the revenue cycle with accounting specific software provides significant upside potential in terms of human resources, as well as opening new revenue opportunities which makes this type of software highly valuable to Finance and Accounting, as well as the entire business.
If you are new to revenue cycle services, this article will be a great introduction to the new, exciting capabilities of revenue management tools.
The revenue cycle in accounting begins when the deal is made. Whether this deal comes in the form of an order, or a contract, each will ultimately drive the billing. How frequently and how much? If there is recurring revenue, is there a stop date, or is there an evergreen clause to automate the renewal?
Invoicing begins with the contract, whether a human tracks this information, or an application.
Automating a revenue cycle can refer to a system that enable human resources as they receive the contract, put together an invoice and send it to the customer. Maybe the system allows you to set rules for recurring invoices, or it might pre-populate some of the information into the invoice.
However, more advanced systems will scrape billing information from the contract itself and automatically calculate invoices down to amortized revenues. Many of our clients ask about amortization because it is one of those industry-specific details that would be easy for vendors to overlook. However, solutions do handle amortization very well.
Pricing controls
There can be problems when salespeople negotiate poor deals for the business, get paid and then pass over the hard part to the back office, where the team has to figure out how to make it profitable.
Many revenue management applications deliver pricing controls and automate approvals processes which help the organization enforce its rules to achieve profitability goals.
Once created, invoices are sent to the customer. Communication may be through any number of channels:
Of these three, the last possibility conveniently allows invoices to be sent directly to the customer’s account payable system, streamlining the billing process.
Revenue cycle applications can allow payment to be remitted directly to accounts receivable. Once payment is received, invoices are marked as paid, and the system is updated automatically and in real-time. The customer is given plenty of convenient, quick options that drive payment timeliness.
Collections, however, are one difficult area for software. When the bank receives checks, they do not communicate what invoice was paid, only what payment was received. This presents some challenges to automation.
Revenue management software has developed extremely efficient solutions that move from front to back office seamlessly. We call these systems, “sell it, and forget it” for how effectively they turn contracts into revenues.
Value in these cases is often defined in real monetary returns, which means there is a strong business case for these tools. As a result, these tools can be extremely expensive. This is one area where you want to be as informed as possible so that you can choose the right software at the right price.
Contracts Management and Configure-Price-Quote (CPQ) tools have been available and evolving for decades. From a change management perspective, these tools can be difficult because they bring enforcement, and your sales force might give some pushback. However, this is because orders and contracts become standardized during software implementation, which enforces some discipline on the sales side but makes work easier for everyone.
Revenue management is not back office, and it is not front office either. It is something in between. The term “middle office” describes where their applications operate. Their applications can help sales people and contractors finish the contract and move directly into invoicing, making it easy to add recurring revenues as the contract moves into the back office system.
Automating the revenue cycle provides valuable opportunities. Recurring revenues can build a up a large business case very quickly. If you're a $100 million dollar business and you can put in a system that will increase your ability to bill by 1%, you are looking at $1 million annually. After expenses, if you are highly profitable (20%), that means $200,000 per year.
Additionally, there are areas where revenue leakage can be prevented. Financial teams can be significantly more productive when they do not need to deal with Excel — they can do more valuable things than just pore over spreadsheets.
It is easy to drive a business case for CPQ and contract-to-cash which explains why these tools are priced above other software applications. These vendors know you will earn a great ROI. The price tag might be high, but ultimately, the price is justified. Just be sure you include some of these name brands in your search, so that your pricing estimates are reasonable.
As always, if you have any questions about revenue cycle automation, please be sure to ask us! We would be happy to sit down and discuss our experience with you.