Streamline Your Professional Services Firm’s Quote-to-Cash Process

By Jeanne Urich, Managing Director, Service Performance Insight
Speed up the time between quote to money in the bank

This is the first of a two-part series. This article explores breakdowns in the quote-to-cash process for services organizations and how to fix them. Part two will provide recommendations for integrated business applications to streamline and automate the quote-to-cash process.

cashIn today’s economy, cash flow rules. To maintain a solid financial position and maximize profitability and liquidity, every organization must focus on cash flow. In professional services organizations (PSOs), this process begins with a client quote and ends when payment is received, and the money is in the bank.

This macro process of converting sales opportunities into paying customers is often referred to as quote-to-cash, and its optimization is essential for financial well-being.
Many PSOs emphasize the collection process once an invoice is generated and the work has been delivered. They specifically target DSO (days sales outstanding) as a key metric of financial hygiene. DSO is actually the “tail of the dog” that represents the final process of a progression of steps to convert opportunities into cash.

In reality, quote-to-cash is a series of interrelated processes that include:
• Sales pipeline and forecasting.
• Project scoping and estimation.
• Proposals and approvals.
• Contract negotiation and acceptance.
• Project staffing.
• Project execution.
• Consultant time and expense capture.
• Project completion and acceptance.
• Invoicing.
• Collection.

As shown in Figure 1, to optimize these fundamental business processes, many professional services executives rely on the integration of core business applications to provide visibility, transparency and control. These applications include client relationship management (CRM), professional services automation (PSA) and the core financial management application, enterprise resource planning (ERP).
Figure 1: Quote-to-Cash ProcessFigure 1

Source: Service Performance Insight, September 2014

Each manages aspects of the quote-to-cash process. Although these applications are offered on a stand-alone basis, the true power of streamlining the entire quote-to-profit business cycle is best accomplished by an integrated suite of applications, commonly referred to as Project-Based ERP or service resource planning (SRP).
Services challenges

The pressures facing the professional services sector are similar to those in other markets:
• Generate high-quality leads and qualify prospects.
• Win competitive bids.
• Book and schedule orders.
• Deliver high-quality services, products or both in an efficient and profitable manner.
• Collect time and expense efficiently throughout the life of the project.
• Invoice in an accurate and timely manner and expedite the collection of money.
• Maintain and grow existing client relationships to sell additional products and services.

Product-oriented organizations must consider product availability and the efficiency of the supply chain. For professional services, however, the real concern involves people and the interrelationship of different functions: marketing, sales, service delivery, finance and account management. These groups often have competing goals and priorities as companies identify, price, bid, win, perform, collect and expand services projects.

High-performing services organizations develop clear roles and responsibilities, combined with congruent measurements and supported by integrated systems, to effectively manage the quote-to-cash process.

As shown in Figure 2, the services quote-to-cash process begins with the development of winnable proposals that meet or exceed the PSO’s financial requirements. Once won, the PSO schedules the project and staffs it with appropriately skilled resources who can deliver quality services on-time and on-budget. As project delivery proceeds, the PSO closely monitors progress to ensure the project meets the client’s requirements and remains profitable while collecting consultant time and expense.
Figure 2: Service Quote-to-Cash ProcessFigure 2
Source: Service Performance Insight, September 2014

Finally, at various milestones during project delivery, and at the end of the project, accurate and timely invoices must be generated that clearly reflect the work provided and the time and expenses incurred, so that they can be expeditiously approved and paid by the client.

The problem for many PSOs

As in most businesses, without effective leadership and collaboration, PSOs operate in silos, or on a department-by-department basis. They are narrowly focused on succeeding in their given tasks. For organizations to succeed, they must work in partnership, with support across all functions. PSOs will only prosper if business processes are aligned across all departments, teamwork is pervasive, and visibility exists company-wide.

Common breakdowns in quote-to-cash business processes

The underlying cause of poor financial performance often stems from organizational and functional process breakdowns in the quote-to-cash process:
1. Quote (presales). Poor lead qualification contributes to a high cost of sales and a lack of alignment between opportunities and service capabilities.
2. Sell, negotiate and get order (sales). Inability to articulate the service value proposition inhibits calling on the real decision-makers. This can lengthen the sales cycle and may force acceptance of unfavorable contract terms or excessive discounts.
3. Staff (initiate project execution). Inefficient resource management and poor or nonexistent skills tracking can lead to assigning the wrong resources on projects resulting in delays and overruns.
4. Delivery (project execution). Poor alignment and handoffs between services sales and delivery lead to miss-set client expectations and acceptance of unrealistic timelines and/or deliverables.
5. Invoice and collect (billing and reconciliation). The lack of alignment across contracts, statements of work, project plans and time and expense collection can trigger invoicing errors which lead to lengthy collection cycles, rework and lost revenue.

Clients, understandably so, hate repeating discussions, requirements and agreements to disconnected sales, service delivery and finance representatives. Messy handoffs between functions inevitably cause project overruns and lengthy collection cycles which compromise client satisfaction, referrals and future business.

These organizational and process breakdowns are exacerbated by poor or non-existent systems, manual processes and data re-entry caused by a lack of integration between CRM, PSA and ERP applications. The final coup de grâce in a broken quote-to -cash process is the lack of management reporting and visibility to be able to spot problems and fix them before they spin out of control.

How to fix a broken quote-to-cash process

When the quote-to-cash process is broken, the best place to start is with an assessment. Some of the areas that are effective improvement steps include:

• Comparison to industry benchmarks shows the revenue and profit potential if improvements are made and provides the business justification for making an investment.
• Assess competing functional roles, responsibilities, goals and measurements to reveal the underlying causes of friction and misunderstanding.
• Conduct RACI analysis to clarify roles, goals and lines of authority to pinpoint processes where clear ownership, accountability, measurement and rewards are missing.
• Model “as is” and “to be” business processes to lay the foundation for change and clarify roles, responsibilities and handoffs between functions.
• Based on objective analysis, align leadership priorities.
• Develop an actionable business plan which includes budget for new systems and applications.
• Empower project teams to focus on the top improvement initiatives, which will likely include selecting and implementing new systems and business controls with appropriate metrics.

What it takes to get results

To drive profitability levels higher, PS executives are taking a more holistic approach to the quote-to-cash process, perhaps the most critical of all PS processes. Delivering services efficiently and effectively is just one area of importance in improving profit margins. Ensuring the organization is focused from the beginning on selling, delivering and collecting from the best clients who will continue to buy and use the most profitable services is paramount to success.

While there are many collaborative tools organizations can use to inform and educate their employees on which clients to target, what services to sell and at what level of expected return, the use of CRM in conjunction with PSA, each integrated with the core financial solution, offers the best chance of improving profitability.

This article explores breakdowns in the quote-to-cash process for services organizations and how to fix them. Part two will provide recommendations for integrated business applications to streamline and automate the quote-to-cash process.

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