Shorten Your Sales to Cash Cycle
Posted by Bas van Woudenberg
Poor cash flow controls can be a nearly insurmountable issue for a new or struggling business. Even well-established high-performers occasionally face constriction in cash flow. Why? Because customers are not usually in a hurry to pay and businesses often fail to implement the right processes to ensure streamlined collection.
Defining the Challenge
Long sales-to-cash cycles often start with poor data collection. When businesses create accounts, build invoices, and deliver services or products, the right information may never make it into accounting software. That leads to slower collection activities and reduced effectiveness. Everything starts with precision. The more precise the data collection process at implementation, the less confusion there is when it is time to collect on a bill. Be sure to capture information like:
- Payment terms. Whether the terms are 30 days net or include extended payment frameworks, it is crucial to capture the actual timeline of every customer contract.
- Early payment discounts. It is not unusual to offer small discounts for early payment, but when this information doesn't translate to billing software, it can lead to customer confusion and even more delays when it comes to collecting on outstanding invoices.
- Automatic payment authorizations. Some customers don't want to face constant reminder notices and would rather implement automatic payments. When this information is not properly applied to an account, it can create push back and more payment delays.
- Correct pricing and quantity. Automating pricing information offers some big benefits. When sales departments don't need to worry about manual entry, it can avoid a lot of the hassles of an invoice error.
Capturing actuals as they occur and ensuring that all contract details make it from the original documentation to invoicing software can help streamline the collections process and reduce the amount of Daily Sales Outstanding (DSO).
Identifying the Cause
With B2B sales, there is often a set timeline for the transfer of goods/services (sale) and the collection of cash. When invoices for those sales result in challenges and error-reports, it can further delay the time it takes for a business to receive payment. Reducing error rates on invoices immediately impacts cash flow. Invoice disputes take time and internal resources to resolve, often leaving contracts open for months after the original due date. When an invoice is in dispute, it can be difficult to assess late fees or lack of payment charges. Ultimately, bad data leads to bad reporting, which results in more bad invoices. Not only does this slow cash collection, it also negatively affects business reputations. Businesses that routinely send out invoices that need corrections also create high turnover rates and higher customer acquisition costs.
Process Data Differently
To move away from these issues, the solution is simple: process audits and improvement initiatives. Starting with timesheets, frequent approvals are a must. Happy employees receive accurate paychecks on time. After all, timesheets are just another type of invoice. Then, audit the invoice creation and approval process. A well-defined system will remove data collection roadblocks and get sales and accounting on the same page. When both use the same system for data collection, it eliminates data silos that can slow down procedures and generate errors.
Error-free invoicing starts with defined contract terms and attention to detail when creating the contract. The right system can offer pre-programmed options that will help catch errors as they happen, rather than downstream during collections.
Learn more about how to better manage the sales cycle with our upcoming webinar, "Shorten your sales cycle - reduce DSO by 15 percent."
To learn more about best practices for improving financial planning and processes read the latest analysis by Gartner.