The quote-to-cash (Q2C) process is a vital part of the sales cycle that is responsible for driving revenue for an organization. It encompasses detailed sales functions spanning from initial quote configuration to payment receipt and revenue recognition. Optimizing the Q2C process allows companies to speed up sales cycles, close a higher percentage of deals and create a better buying experience for customers.
The foundation: Configure, price and quote (CPQ)
The first stage of the Q2C process is commonly referred to as configure, price, quote (CPQ). This subprocess is kicked off when a salesperson is building a quote for a potential customer. This includes configuring the applicable combination of products and services to meet that customer’s needs while incentivizing the customer with an appropriate pricing structure that maximizes revenue. After configuration and pricing have been established, the quote should be delivered to the customer in a timely, error-free manner, otherwise this can damage the credibility of both the sales team and organization.
The framework: Contract creation and execution
The next stage of the Q2C process is creating secure contracts that capture order details and agreed upon terms and conditions. These agreements are important as they carry details that can significantly impact an organization’s revenue streams. During this phase, contracts typically undergo many iterations as contract terms and clauses are modified during negotiation. To effectively execute the contract, it is critical that a clearly defined approval process exists to ensure the appropriate functional and legal owners provide their sign-off.
The product: Order fulfillment and revenue
During the order fulfillment stage of the quote-to-cash process, orders are communicated to different teams, processed and delivered. Once the contract has been signed, the operations team ensures the appropriate products and/or services are delivered to the customer. This includes checking the availability of the product or resource that provides the service, overseeing the delivery, managing completeness or issues with orders, handling backorders and providing updates to the customer.
Once the performance obligation has been met, the fun part begins – recognizing revenue from the order! Performance obligations differ between product orders (e.g., FOB shipping, FOB destination) and service orders (executing on the service agreements) and can differ between various types of product and service orders. In accrual accounting, revenue is recognized at this point, even if cash has not been exchanged.
The money: Billing and cash
Parallel to order fulfillment and depending on an organization’s offerings, there are a variety of ways to invoice customers: upfront, for critical milestones, using a billing schedule or another method that suits the business. Now that invoices have been sent, here comes the cash! Incoming payments and deposits need to be matched to the appropriate invoices or customer accounts. While this was once a manual process, or still is for many organizations, cash application can be largely automated by various technologies available today. Leading ERP systems are also equipped to handle several other processes concerning cash flow including but not limited to managing collections, write-offs and refunds. If only every customer paid on time and in full, there would be no need to worry about most of these things. Collections is the process of chasing payments owed by customers through reporting, dunning notices and other methods. In the event money owed cannot be collected, writing off that bad debt must be accounted for. Once the cash comes in the door, it’s now everyone’s job to make sure it stays there! Organizations want to minimize the number of refunds issued because physically reimbursing any money will impact the revenue recognition that has taken place.
What does this mean for organizations?
Efficient Quote-to-Cash processing is critical to keeping customers happy and growing the top line. Protiviti’s consulting practices provide a variety of offerings related to process improvement, including business process re-design, software selection and implementation, and data analytics.
Protiviti experts are available should you wish to learn more about sub-processes within quote-to-cash, how the process varies between different industries, and how we help clients through key challenges in these areas.
Grant Horton, Simone Stavros and Bob Kiddoo also contributed to this post.