What is Revenue Cycle Management? In a commercial setting, revenue cycle management involves the speed and accuracy of invoicing for goods and services through receipt of customer payments. This process sounds simple enough but sometimes we make it difficult without trying. I like to break it down into a few pieces. The first two pieces are internal processes and entirely within a Company’s control. The last two pieces are different: they are domiciled at the Customer, but timely and professional inquiries by your Company can have a positive impact on speed of Customer payments.
CUSTOMER ON-BOARDING
This is a critical internal process and requires transparency between your sales and operations departments. This actually needs to be reviewed on a preliminary basis before Sales finalizes a contract with Customer regarding service standards, performance penalties, expectations and pricing. This also influences how the invoicing is to be prepared. Customer expectations and Company commitments must be clearly documented in a contract and communicated internally in exactly the same manner to avoid any disconnects.
INVOICING
Distinction is made between speed and accuracy. Your process has to be spot-on with both points. Simply cannot have speed and inaccurate invoices – just like you cannot take 20 days (or more) to issue accurate invoices. Many companies take these things for granted – their systems and processes are advanced and refined so every invoice is issued accurately and timely. But if you are one of those companies that has not been able to devote time or resources to addressing these fundamental tasks – you are slowing down your revenue cycle, engaging in certain re-work and re-issuance of correct invoices and putting stress on your liquidity and capital structure.
CUSTOMER PROCESSING
This applies if you have a manageable number of sizable customers and have time to reach out to them regularly. Said another way…this would not apply to a company that sells to a large number of small volume customers and there is little contact post-sale. I like to contact the customer and be sure their accounts payable people have received my company’s invoice and are in agreement with the support or delivery documents/reports they require. I suggest doing this about two weeks after the invoice has been issued with normal 30-day terms and identifies a lot of problem situations before they fester on an aging report. This is particularly worth doing with a new customer to identify issues early – and get them addressed.
CUSTOMER PAYMENT
Some customers take pride in prompt payment and recognize there is a benefit for themselves by reducing/eliminating vendor calls for payment. Pause now to applaud those customers! Seriously! However, there are many other customers that want to be called before they remit payment. They may have liquidity issues, or they may be one of the largest and most recognized names in the S&P 500 flush with cash – doesn’t matter. What does matter to you is to learn the tendencies and hoops each customer puts you through before payment. Unless you understand your Customer internal process– you will be left scratching your head watching your aging deteriorate.
Nothing cutting-edge stated here – all very basic. Take care of these four critical areas and your revenue cycle will pick up speed!
