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Using technology to trim revenue and receivables leakage: progressive companies are using a combination of order-to-invoice quality and collections automation technologies to arrest this growing source of profit erosion.

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, chargebacks, write-offs, penalties and unearned discounts.

Often, errors aren't even detected until long 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 (DSOs) and productivity costs.

It's easy to see why the leaks occur. 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 for inconsistencies and errors abounds.

An unearned discount here, a mispriced 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. No wonder finance executives lose sleep, worrying about plugging leaks instead of focusing on value-added initiatives.


Unlock Capital, Stop Leakage And Cut Costs

But, it doesn't have to be this way. 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's 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 play havoc with profit margins and customer relationships.

Simultaneously, best practices can enable click-through, real-time visibility into forecasts and up-to-date status across various reporting hierarchies and all events and transactions as they take place. And, finally, it's important to automate the process of managing late payments, resolving disputes and accelerating collections to reduce DSOs and operational costs.

The first step towards this goal is to centralize and correlate all order-related information. This includes quotes, purchase orders, change orders, 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 end-to-end visibility into the process. 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 it's difficult to keep up with changes 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, chargebacks or unearned discounts.

These rules can include pre-set tolerances for automatic approval, and can also trigger alerts to warn of developing problems. Moreover, the rules can be configured by the key process owners directly, without having to go through a centralized and protracted information technology process.

All of this enables exceptions and issues to be proactively addressed before they flow downstream and cause revenue leakage, high DSOs and customer dissatisfaction--and become costly to resolve.

Driving Continuous Process Improvements

In the spirit of the International Organization of Standardization (ISO), Six Sigma and other 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's 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, its root cause is identified, analyzed and eliminated.

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 chargebacks and penalties helps keeps customer relationships on a higher plane.

Equally important is addressing the "mud" that comes with the leak. Unaccounted-for discounts and deductions, unreconciled chargebacks and penalties and significant payment delays 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 planning (ERP) 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 the auditability of the entire process leaves much to be desired in today's world of increasing focus on compliance and governance.

These issues can be solved, and their resulting impact on high DSOs 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 stakeholders 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 key performance indicators (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.

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. Finance professionals in these companies are spending more of their time working on strategic finance initiatives that deliver more value, rather than having to figuratively plug the leaks with their fingers or whatever else is handy.

Sanjay Srivastava is Chief Operating Officer of Aceva Technologies, a provider of enterprise application software solutions for revenue and receivables management based in San Mateo, Calif. He can be reached at 650.227.5500.


* Organizations are at risk of losing a significant percentage of gross revenues because of leaks, gaps and undetected errors in their business processes.

* The quote-to-cash cycle and associated processes are ripe for profit loss in the form of late pays, charge-backs, write-offs, penalties and unearned discounts.

* Forward-thinking companies use a combination of order-to-invoice quality and collections automation technologies to arrest this growing source of profit erosion.

* The insights derived from having actionable visibility into the quote-to-cash cycle can be marshaled to drive continuous business process improvements.
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Title Annotation:financial management
Author:Srivastava, Sanjay
Publication:Financial Executive
Geographic Code:1USA
Date:Sep 1, 2005
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