Business Process Management

The Quote-to-Cash Process: Your Comprehensive Guide

April 02, 2024

You just closed the biggest deal in the history of your company, one that crushed the competition and enabled you to exceed your revenue goals. So, the hard work is done, right? Not quite… Closing the deal is just one step on the journey to receiving and recognizing revenue. The quote-to-cash process (QTC or Q2C) touches nearly every function within your business – sales, legal, order fulfillment, finance, and more – which in many organizations are siloed entities.

As a customer-centric activity, the entire quote-to-cash process needs to be fast and flawless. However, manually handling these processes or using disparate systems often results in delays, errors, revenue leakage, and customer dissatisfaction. To overcome these challenges, many companies are streamlining QTC processes through automation.

What is Quote-to-Cash?

Encompassing sales and payment, the quote to cash process covers end-to-end functions beginning with offer configuration and concluding with revenue recognition. While a critical process for your enterprise’s ongoing profitability, this process often remains status quo, and for many businesses this means unresolved weaknesses within one or more of the processes.

QTC is the term used to describe the end-to-end business processes within the sales cycle. The core steps within QTC typically include everything from configuring the product or service to collecting, allocating, and recording revenue. However, once revenue is recognized there are a few more steps that should be incorporated into your QTC cycle.

The Quote-to-Cash Process Explained in 11 Steps

1) Offer Configuration

The quote-to-cash process starts with the configuration step. This first action consists of the sales rep using all available information to determine the configuration of the product(s) or service(s) requested by the customer. It’s essential that this step is accomplished as quickly and accurately as possible. When sales reps use spreadsheets or other manual tools, the risk of configuration delays and/or errors is high, which will impact downstream quote-to-cash processes, revenue, and customer satisfaction.

2) Pricing

This process is often riddled with complexities, making accurate pricing of the product or service time consuming. While a simple pricing structure makes this step straightforward, many times pricing entails multiple layers such as promotions, discounts, bundles, or add-ons, slowing down the process and opening the door to pricing errors and the opportunity for a competitor to win the deal.

3) Quote Creation

As one of the first customer impressions you’ll make, the quote needs to be error-free and promptly provided to the prospect. Unfortunately, this step is where many companies encounter a breakdown in the workflow.

Generating the quote requires information from numerous internal stakeholders and is often prone to delays. Quotes that aren’t delivered promptly or contain errors often result in the prospect going to the competition. This not only can result in the loss of the sale but may harm your brand credibility.

4) Negotiation/Contracting

Once the prospect agrees to the quote, a contract or formal proposal is created. This step can be as simple as the customer immediately accepting the contract, or alternatively, negotiations may take place. While you can’t completely eliminate negotiations, you can reduce the number and duration by ensuring that the contract is error-free and promptly provided.

5) Order Fulfillment and Management

Once the contract is signed and the order is placed, various departments are notified, kicking off the fulfillment process. This step consists of processes that range from order approval to disseminating the order for processing, fulfillment, and notifying the shipping department. However, if you run a software-as-a-service (SaaS) organization, you won’t have products to ship, but access to the purchased software will need to be provided to the customer.

This step then triggers a notification to finance, informing them that an invoice can be generated. With the numerous notifications between departments that need to take place, automation is a must to ensure notifications happen quickly and accurately, and the next step in the process can commence without delay.

6) Billing and Invoicing

The process is now in the hands of your accounts receivables team who calculate final charges and produce an invoice. To minimize payment delays, the invoice needs to contain all necessary information like the purchase order number, breakdown of purchased products and services, fees, taxes, payment terms, discounts, promotions, etc. It’s also important that the invoice is error free and sent to the customer as quickly as possible.

7) Payment

In an ideal world, payment would be received on or before the due date. What happens when payments are delayed or there’s a need to issue a credit or a refund? In the case of late payments, you need to quickly contact the customer to reach a mutually agreeable resolution. With respect to credits or refunds, they constitute one of the most labor-intensive activities of the billing cycle and need to be handled quickly and efficiently.

To simplify the payment process and reduce days sales outstanding (DSO), be sure to support a variety of payment preferences such as debit/credit card, checks, PayPal, direct debit, lockbox, and hosted payment pages.

When payments remain in arrears, you need to quickly manage outstanding debt by tailoring and scheduling notifications to keep customers informed of past due balances. This is best accomplished by creating dunning actions that can automatically be triggered based on predefined thresholds.

8) Revenue Recognition

Accurate revenue recognition is essential for financial reporting integrity. When payments are recurring, this step takes on even more significance as profits and losses need to be precisely documented. Additionally, to stay compliant with ASC 606 and IFRS 15, as well as other regulations, you need to ensure that the revenue you receive is recognized only when realized and earned. By accurately recognizing payments, financial forecasting and revenue projections become easier to create and more exact.

9) Renewal

At this stage, the customer can renew the contract or re-purchase products or services. This is also the period that provides the company with the opportunity to maximize customer lifetime value (CLV) through upsell or cross-sell activities.

10) Analysis

At this point, the company needs to analyze and report on data relevant to the QTC process.

11) Process Improvement

Using the analyzed data from the previous step, these insights provide the information needed to improve the quote-to-cash process.

With so many touchpoints (the prospect, internal resources, and disparate systems), this cross-functional, multi-layered process is prone to payment delay, errors, miscommunication, missed opportunities, and poor customer experiences.

Let’s dig a bit deeper into some of the most frequently encountered QTC challenges.

Common Challenges Associated with Quote-to-Cash

While the above 11 QTC steps may appear straightforward, the quote-to-cash process is intricate. Even an insignificant error or delay has downstream repercussions that can negatively affect revenue and customer satisfaction. Here’s 6 of the most common challenges companies face when it comes to QTC.

  1. Quoting challenges: This challenge is especially prevalent among companies that use spreadsheets to track the pricing of their products and services. This practice often results in prices that are not up to date, leading to quotation errors. Additionally, if quotes provided to prospects aren’t competitive, the result is loss of business to a competitor.
  2. Billing challenges: There are two primary challenges associated with billing/invoicing. The first, sending invoices that are error ridden. And the second, invoices that are delayed or forgotten entirely. Regardless of the cause, both of these mistakes will eat up cash flow and negatively affect your brand.
  3. Payment challenges: Payment delays can happen for a variety of reasons, some of which are beyond your control. However, invoice errors and not sending invoices in a timely manner are two which automation can lessen the impact.
  4. Revenue recognition challenges: When handled manually, revenue recognition is a tedious, time-consuming, and error-prone process. Errors made during this process not only result in regulation compliance issues but hinder your ability to accurately project future revenue.
  5. Customer challenges: A byproduct of the above challenges, customer dissatisfaction not only negatively affects the customer but can result in prospects viewing your company in a less than favorable light.
  6. Opportunity challenges: Whether due to handling the QTC cycle manually or a result of dissatisfied customers, the ability to upsell and cross-sell depends on meeting customer expectations. Without this revenue-generating opportunity, you put the business at risk of lessening CLV, reducing profitability.

How do you ensure that your quote-to-cash processes are efficient, effective, and error free? Automating this process enables you to streamline the QTC cycle and turn challenges into opportunities.

Streamline the Quote-to-Cash Cycle

While there are many ways to improve QTC, automating as many of the processes as possible enables you to streamline workflow, reduce errors, and grow customer loyalty. Given that there are numerous QTC solutions on the market, the best ones automate quote generation, provide seamless integration with your existing ecosystem, and measure QTC performance.

With the right QTC system, you’ll overcome many inherent challenges, including:

  • Reduces siloed systems: Integration with existing systems helps to improve communication between departments, reduces the amount of time needed to accomplish each QTC step, and enhances the customer experience.
  • Minimizes quotation errors: Automation significantly decreases errors resulting from manual effort. This alone will aid in converting prospects into revenue-generating customers.
  • Reduces order and billing errors: Similar to quotation errors, order and invoicing errors are greatly reduced when quote-to-cash processes are automated.
  • Increases customer retention: QTC automation reduces the time needed to complete the cycle, ensures accurate and timely communication, and lessens errors which can negatively affect customers.
  • Improves revenue and profitability: Automating QTC provides sales reps with the accurate information needed to proactively upsell and cross-sale to existing customers.

Since automation triggers the next step in the process, your QTC cycle becomes more streamlined and efficient, enhancing your sales efforts, improving prospect conversion rates, and ultimately increasing revenue and profitability.

Boost Revenue with QTC Automation

To stay profitable, you need to turn quotes into billable transactions, and handling QTC manually puts you at a distinct disadvantage. To optimize your success, you need a QTC solution that integrates all required processes – CRM, ERP, pricing, invoicing, revenue recognition, business intelligence, etc.

BillingPlatform’s solution supports the entire revenue management process from a single source of truth – from quote-to-cash. As part of a unified quote-to-cash platform, our CPQ billing system helps organizations offer a fast and seamless experience when configuring and selling products and services – even when customization is required.

Our industry-leading, cloud-based solution provides the end-to-end QTC automation needed to convert prospects into customers, increase profitability, and enhance the customer experience, enabling you to rise above the competition. Reach out to our team to learn how we can simplify automating your quote-to-cash process today.

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