by  Lynchburg College Archives

In today’s installment of my series on small business growing plains I am going to talk about the order-to-cash cycle.  When a business is new it is easy to get so excited about the first sale that as soon as an order is received or a contract signed the business owner immediately sends out the associated invoice or statement.  Those simple documents are full of symbolism for the nascent concern – you are for real!  You have real customers and can bring in real money!  Woo hoo!

The Order-to-Cash Conundrum

As you get bigger and busier it is easy to put off creating those all-important documents that a)represent potential income to your company and b) signal your customer to pay you.  Maybe you don’t have time to create them more than once a week, or worse, once a month.  All of a sudden getting paid is taking longer and longer.  Even if you get administrative or bookkeeping help you’ll likely settle on a set schedule for billing, perhaps once a week, that doesn’t jive with when you actually sold the order or the contract.

When you get even bigger and busier it can get worse – let’s say now you have sales people to sell orders or contract work.  Or that you have field service technicians that have to do the work that in turn leads to an order.  These guys have paperwork to get filled out and they may not be in the office every day so it is easy for that paperwork to be delayed and then, when it is finally turned it, it may be incorrect and require a cycle of rework.  Now your invoices and statements are even MORE delayed.  Add that to the fact that your customers aren’t always in a hurry to pay you right away and you suddenly have a cash flow problem.

How can you avoid or rectify this ever-lengthening order-to-cash black hole?

Order or Contract Entry

There are a number of ways to improve the order or contract entry process :

• Keep your sales customer information in sync with your accounting customer information.  This can make it quicker and easier to set up a new account for billing and make sure you apply the order or contract to the correct billing customer.  You can keep them in sync thru manual processes or by integrating your customer relationship management system with your accounting system.  Some applications integrate easily, others may require some help from a technical resource.
• Provide mechanisms to allow your sales or field service folks to enter contracts or sales orders online.  This can be as simple as having them upload a spreadsheet to a specified place to as fancy as an application that they can access remotely, maybe even from a mobile device.  The quicker you can get the contract or order entered into your billing application the faster you can get invoices out.  Where possible cut out paper altogether; if it isn’t possible to go paperless try to change your process to match paper to online records on the back end.
• Incent your sales and field service folks to enter their information online quickly and correctly.  Quite simply, if you can’t bill your customer maybe they shouldn’t get paid.  Hmm, just a thought.

Invoice Creation

• Simplify invoice or statement creation.  Avoid “special” invoices for customers and make sure any invoice or statement can be easily produced from your accounting software.  If your accounting software doesn’t do this you might want to look for a system that does or look for a billing system that integrate with what you have.
• If you can put invoice creation on “auto-pilot” where it runs on a regular schedule all on its own, do so.  If you can’t, adjust the back office processes to create invoices on a regular, frequent basis.  How regular and frequent?  It depends on your cash flow needs but daily, if it isn’t a complicated process, might not be too often.

It is easy for the order, contract and billing processes to get in the way of getting the customer a timely invoice.  Beyond prolonging the time until you get paid, what kind of message does a tardy invoice send your customer?  That you are unorganized?  That their business isn’t important?

If you think there are ways to improve your order-to-cash cycle, contact your technical advisor.  He or she can help you review your current processes and talk about where improvements, both manual and automated, might be in order.

If you thought this post was helpful you may want to check out the rest in this series so far.

• Can you keep up with your customer’s service needs?
• Are you addicted to spreadsheets?
• How long does it take to set up a new customer?

by  Sebastian Mary

All across town there are cafeterias and lunch counters that want to offer their customers good-tasting, made from scratch pizza each day, without having to make it themselves.  Enter Joe.  Joe is in the wholesale pizza business.  He makes a few types of pizzas in bulk and delivers them each day to to these food service establishments.  Each day his customers place their orders for the next day – how many pizzas of what sort and what time they want them.  They can even place multiple orders for a day – maybe two deliveries during the lunch rush and and another for the mid-afternoon snack crowd.

The key to Joe’s success is to be able to deliver the pizzas they want, when they want them.  His customers insist on getting hot pizza on time and are willing to pay a premium for a reliable, high-quality product.  To this end Joe is putting his money where his mouth is by offering his customers a discount if he is late or delivers the wrong thing.  His Service Level Agreement is more than we need to go into here but basically, if, on average, he is late by more than a few minutes or if, on average, he mis-delivers, his customers get a discount.

This is where things get interesting.  How can he a) collect the data to measure against this agreement and b) report back to his customers on his performance?    Here are some scenarios:

Low tech scenario

Joe’s delivery guys have a delivery receipt on which they record the time of delivery and have it initialed by the customer.  At the end of their shift they return their receipts to Joe’s bookkeeper who keys the information into a spreadsheet.  The spreadsheet has details about each customer and each delivery.

At the end of the month the performance metrics are calculated and the results are used as input into  billing.  A performance report is created out of the spreadsheet and included in each customer’s bill.  The bill can be sent via snail mail or email.

Tech-enabled scenario

Joe’s delivery guys each carry a mobile device capable of accessing files (probably still spreadsheets) on the Internet.   This is easily done with no custom software by using Google Docs, Zoho, Dropbox and the like.  When they make a delivery they note the time of delivery and the name of who received it, online as they complete the delivery.  They still carry paper delivery receipts to get the customer’s initial but they don’t need to go back to the office right away.  Joe’s bookkeeper doesn’t have to key in the data – it is already in file the delivery guy accessed via the mobile device.  Performance and billing calculations are done as in the previous scenario.

Because data is updated on-the-fly on the Internet, it is possible to give Joe’s customers read-only access to the files so they can see Joe’s performance whenever they want, not just at the end of the month.

High-tech scenario

Joe’s delivery guys have a specialized application on their mobile device.  When pizzas are delivered they hit a button that logs the time of delivery.  They then present the device to the customer for signature.    After the customer signs on the mobile device, the data is uploaded to Joe’s system at the click of a button.  Even if there is no coverage, the delivery guys can capture the delivery information and sync it up at a later time.  No paper documents to keep up with, no return trips to the office, no re-keying of information.

Results

You can see, a new small business can easily manage their customers in the low-tech scenario, as long as the number of customers and deliveries stays small.  Once Joe’s business starts to grow, he can move to the tech-enabled scenario without a huge investment.  When he is wildly successful the investment in the high-tech solution will make him much more efficient.

These scenarios really jus tdiscuss applying technology to the “collect” portion of  for Joe’s need to collect, use and report on performance data for his customer’s.   Think about how technology could be applied to the “use” (calculating performance metrics and applying them to billing rules) and “report” parts of the equation!

Would applying technology to your service level agreement process make your small business more efficient?