Every business suffers from some form of revenue leakage. In fact, per MGI Research, 42% of companies experience some form of revenue leakage, making this a serious and pervasive competitive challenge. Moreover, each of those companies should expect to lose between 1% and 5% of their realized EBITDA as a result of leakage according to a notable study by EY.
The results? If you're a $50M - $100M company, that translates to losses from $500k - $5M.
Annually.
And if your business is driven by recurring revenue, billing errors compound and revenue leakage becomes a recurring problem that drags down your ability to grow and compete against industry peers. It’s a major issue that sends cash directly down the drain – so how do you stop the bleeding and design systems that are watertight?
Here’s the answer to that million-dollar question.
Holes in the order-to-cash process
The order-to-cash process is a complex machine, and as businesses scale, a small drip can quickly turn into a full-fledged torrent of lost revenue. It’s important to know everything from how your sales organization captures your order/contract details, to your finance team generating an invoice, to the end-user or customer. During this discovery, you’ll likely begin to identify inefficiencies, areas where manual intervention is required and system limitations.
Companies experiencing revenue leakage typically uncover the following common billing problems:
Unbilled revenue
Failure to bill or undercharge a customer can happen if you’re not able to easily modify an existing contract. You might need to:
- Add additional licenses, service(s), or users mid-contract term
- Bill for overages
- Modify the end date
- Swap a product
- Manage negotiated ramps, uplifts, adjustment policies, or true-ups for any usage-based overages or burst rates
- Reconcile incorrect account information being mapped from your CRM to your billing platform
- Address customers being listed as inactive
Invoice errors
A misunderstanding or error in the price or rate billed results in payment delays and increased administrative burdens because invoices will need to be corrected and reissued. This leads to a negative impact on your DSO, cash flow and customer satisfaction.
Lost renewals
Your overall customer churn increases when you fail to monitor when they’re coming up for renewals, resulting in canceled and delayed renewals.
System limitations
Adding new products or changing terms and prices is difficult with an overly rigid billing system. These limitations make it challenging to clearly convey the service period, price and product description on an invoice, and they make revenue recognition a manual hassle. If you can’t meet your customers’ changing needs, you’re losing revenue.
Overcoming revenue leakage
Companies that are experiencing revenue leakage often discover the problem as they grow and scale. Manual solutions for billing and revenue recognition may have worked well in the beginning, but as companies expand and offer more complex contracts, the inefficiencies in these processes become amplified. Worse, revenue leakage issues tend to compound – not just proportionally increase – so simply doubling down on current investments tends to make the problem even worse.
In these cases, the real answer is to shift strategies by adopting software platforms and integrations that streamline your data pipelines and enhance multiple aspects of your business at once. Depending on where your company is, this may involve investing in an ERP to centralize your data. However, it’s more likely that you’ll need smart integrations that extend your existing ERP’s native capabilities and maximize the value of your legacy systems.
Whatever the case, eliminating revenue leakage will mean centralizing your data, bridging the gap between billing and revenue recognition engines, and more fully integrating your CRM and ERP to unlock the benefits of automation and advanced analytics.
Automated, integrated systems
If your data streams exist outside your ERP, it’s difficult to coordinate business functions with your CRM. That means your billing team will inevitably lose time and introduce costly errors by handling complex billing issues by hand. For instance, many businesses are forced to cancel and reissue contracts when amendments are made.
By automating the process with smart integrations like ZoneBilling, you’ll able to modify contract terms, add line items, swap products, extend the contract or easily modify the bill within the same subscription record. Similar automation benefits ensure that every billing process minimizes or eliminates revenue leakage, including:
Unbilled revenue
Being in constant sync with your CRM is imperative to ensure accurate billing that minimizes unbilled revenue and promotes profit leakage recovery. However, without a tool to track against, businesses are unable to bill for contracted items such as overages or minimum commitments.
Any software solution you choose should allow you to easily manage adjustments, prorations, uplifts, price books and automatically calculate any necessary fees.
The right software integration made all the difference for New Zealand broadband startup Devoli. When their business ballooned by nearly 1000% in under five years, their legacy billing systems were completely unable to keep up. With ZoneBilling, they fully automated their subscription management processes entirely within their NetSuite instance to reduce billing time by 80%.
Renewals
Many companies are forced to adopt the “rip and replace” strategy for renewals because their systems don’t have the functionality to update contracts efficiently. For NetSuite users, native SuiteApps like ZoneBilling allow businesses to easily co-term contract changes, automate renewals through a built-for-purpose renewals engine, and enable timely engagement with customers to curb lost renewal risk. They’re also equipped with accounting teams to create renewal templates to schedule automatic uplifts, change terms, and (de)escalations in quantities, price, discounts or rates.
Reconciliation
Payment gateways like Stripe may need to be reconciled with your ERP, and many businesses experiencing revenue leakage are still handling these processes manually through classic Excel spreadsheets. Software integrations that reconcile data from multiple sources entirely within your ERP make reconciliation and replication easy by updating the status and creating the necessary payment records automatically. The best of the best also carve out processor fees to the appropriate general ledger line items.
Inventory
By connecting your inventory and fulfillment data directly to billing, supply chain issues can be automatically addressed. Zone & Co develops a range of NetSuite solutions like ZoneBilling and ZoneReporting that equip CFOs and COOs with complete and of-the-moment data sources from all aspects of the business to generate key reports on critical activities like supply chains.
Invoicing
Accurately delivering invoices in a timely manner is the key to reducing DSO (days sales outstanding), and inefficiencies in the process are key culprits of revenue leakage. Software integration investments should streamline how your CRM and ERP interact to facilitate accurate and timely invoicing that doesn’t rely on manual processes.
Presentation of information on the invoice is imperative, from summarizing and grouping similar items such as user licenses to breaking out lines of the invoice to show various pricing tiers for consumption-based pricing.
Fraud prevention
Fraud is an ongoing challenge for any business. By automating these processes, it’s much more difficult to perpetrate and conceal fraudulent activities. Zone’s range of integrations for NetSuite users ensures that your data stays completely within your control, so you always own your own risk and compliance.
Advanced analytics
CFOs and business stakeholders can leverage complete and of-the-moment billing and revenue recognition data by combining billing tools with business intelligence (BI) tools and data warehousing solutions. This allows stakeholders to identify the hidden trends and patterns contributing to revenue leakage, plus predict risks and make proactive decisions.
Zone offers a range of powerful data solutions like ZoneReporting that further extend NetSuite by combining your NetSuite data with additional sources (like Google, Salesforce, Shopify, and more) – which provides 360-degree insight into cash flow and aligns your stakeholders on your revenue picture.
Powering future growth with ZoneBilling
Revenue leakage is a natural by-product of manual and outdated legacy processes and systems, but it doesn’t have to be a fact of life. Having a comprehensive subscription record built within NetSuite streamlines your contract management process from creation to renewal. It supports efficient contract amendments and accurate invoicing.
ZoneBilling is an advanced billing system that can help combat revenue leakage throughout your order-to-cash cycle. Additionally, Zone’s range of NetSuite solutions can help you streamline every aspect of your data pipelines, thus extending your ERP’s native capabilities and eliminating issues related to manual processes and inefficient workflows.
See how much you could save with advanced billing and revenue management capabilities.
FAQs:
How do you identify revenue leakage?
Leakage of revenue is most likely to occur anywhere in the order-to-cash process where there are inefficiencies related to manual processes. These may include invoicing errors, pricing discrepancies, contract management issues, payment processing problems, missed billing opportunities and fraudulent activities.
How can you prevent revenue leakage?
Automating the billing and revenue recognition processes with ZoneBilling prevents revenue leakage by extending NetSuite’s native capabilities and supporting advanced analytics.
What is revenue leakage in project management?
Revenue leakage in project management occurs when a business fails to receive expected income because of issues like missing deadlines, going over scope, etc.
How do you track revenue leakage?
Revenue leakage can be tracked by comparing predicted income with realized revenue. By interrogating the order-to-cash process, businesses can identify where and how revenue leakage is occurring.
