The top professional services firms are nailing their quote-to-cash process.
And they’re doing it in a very calculated way. Or: What’s their secret? Of course, there is no discounting good leadership, strategy–a bit of luck, even.
But the companies that grow and make money quickly and steadily, no matter the economic climate, are talking less and taking a lot more (billable) action.
How? By streamlining the activities that make them money: getting, executing and billing for projects, also known as the quote-to-cash process.
In this article, we’re going to talk about how to get this under control, nurture predictable growth and make more money.
- What is quote-to-cash?
- What does the quote-to-cash process include?
- What services firms should beware in their quote-to-cash process flow
- How to improve the quote-to-cash process
- Growth metrics your quote-to-cash software must track
What is quote to cash?
From the time your salespeople quote a service to the moment you have the cash in hand, your teams are engaging in quote-to-cash. Quote-to-cash (shortened to Q2C) is the term used to refer to all the business processes that take place during the sale, delivery and billing of services. In other words, it’s the lifeblood of your services firm.
If you think of your quote-to-cash process as a relay race (which, let’s face it, it is), you’ll get a good picture of how it works. Your teams are the runners moving the client project baton from the initial quote all the way through the last invoice.
Winning depends on its smooth and swift transition between the people who sell your company’s services, to the people who do the work, to the people who handle the money.
What does the quote to cash process include?
The quote-to-cash process follows the baton as it’s passed from sales, to service delivery, to financial teams. So, it breaks down nicely into steps.
However, it’s all too easy to do it the old way–that is, to break it down into isolated rather than integrated steps. Many–if not most–services businesses are currently doing this. Which, as I’ll explain in a moment, sets up some big problems.
But for all intents and purposes, here is what the traditional quote-to-cash cycle looks like:
- As your salespeople track an opportunity, they send the prospect a proposal complete with a service quote and Statement of Work.
- When the opportunity has been won, the sales team hands the reins over to the project department, where it becomes a project.
- Resources are allocated to the project.
- Team members track their hours in timesheets and submit any expenses incurred.
- The project team delivers the work to the client and the invoice is sent out.
- Payment hits Accounts Receivable.
- It’s time to analyze your estimated versus actual budget and profit margin to see how successful the project was.
Now, what’s wrong with this?
What services firms should beware in their quote to cash process flow
What’s killing your quote-to-cash process flow? In a word (or two): information silos.
Before the gun even goes off, silos create unavoidable pitfalls that trip up your relay race runners as they sprint to the finish line. For many services firms, baton handoffs from siloed sales to project delivery departments are unwieldy and slow. Critical client and project information doesn’t get translated, making the project ripe for issues like underdelivery, over-delivery and scope creep as teams scramble to right the wrongs.
As they get slowed down, their billability goes down, timelines get delayed and your margins go down the tubes. Billing gets drawn out, invoicing disputes increase, clients feel burned and your cash flow gets interrupted. Which, for a growing business, can spell death.
All because your teams weren’t equipped to access vital information they needed in the first place, in a timely manner.
How to improve the quote to cash process
Only a solid quote-to-cash software tool built to streamline each process through automation in one efficient system will give you control and your teams complete visibility of client and project information, budgets and margins.
A robust quote-to-cash tool can automate time-consuming tasks–invoicing, for example–and help your teams work more efficiently, saving more time for billable work, the key to a services firm’s health, prosperity and growth.
Here are some of the most important things your software solution should be doing for your quote-to-cash cycle:
- Create opportunity projects that form the basis of your financial, staffing and time estimates.
- Automatically create quotes and proposals based on your soft bookings and emailing through integration with your email client once approved. This ensures your salespeople can deliver accurate quotes without delays that can cost the business.
- Send you notifications about opportunity status changes so you can act immediately. You should just be able to quickly go into the software and know at a glance where the sale stands.
- Store all proposal and project documents in one tidy place where all team members can easily access them.
- Turn your opportunities into live projects with all the required information by clicking a button. Simple.
- Help your project managers assign resources to projects by automating role matching and providing a bird’s eye view of all team members’ availability, hours planned on projects and potential overplanning.
- Pre-populate timesheets for accurate, easy time tracking, ensuring correct client billing.
- Email your teams with their workflows so they can follow up with clients right away. Management can assign tasks, communicate in context and approve quotes, invoices, expenses and timesheets as they come up and move projects along faster and more efficiently.
- Automate invoicing runs. Ideally, fixed projects should be on a schedule you choose so you can “set it and forget it,” and time and material hours should be automatically transferred to invoice templates. Like your proposals, it should be: click, approve, send.
- Sync Accounts Receivable records with your accounting package and update your financial trackers so you know you’re on an even keel.
- Update project budgets, margins, schedules and completion percentages per deliverable to see estimates versus actuals in real time.
Growth metrics your quote to cash software must track
By now you know a Q2C system has the power to gather data for your teams and return real-time financial insights they need to forecast revenue, monitor project and company profitability and keep growth goals on track.
Let’s look at some of the growth-specific metrics that need to be automated and easy to see at a glance. That is, with absolutely no manual, slow, error-prone calculations that, in all likelihood, will only give you a rear view rather than the present and future views you need to make decisions.
Beyond the usual reports like Cash Flow, Balance Sheet and Profit and Loss from your accounting software, these are the core metrics you need to measure with the help of Q2C software to stabilize profitability and create predictability.
No services firm can function without knowing its actual project margins against the estimates. The key is to have these figures in real time. This is how you accurately predict, monitor and intervene before profitability takes a hit.
And as a growing business, you’ll need that data to assess the progress and feasibility of your growth goals.
When you create an estimate, chances are that you won’t know what team member will ultimately deliver the work. And so, whilst you do know your sales rate up front, you don’t yet know what your actual cost rate will be. And as you know, different team members have different cost rates. All said and done, rates need to be high enough that they’ll offset your resources’ costs, non-billable hours, overheads and recurring business expenses and, of course, your margin.
Q2C software should allow you to drill down into past and current work assignments to understand the actual versus estimated cost rates so you know you’re striking the right balance and you never pay more than you make.
As you well know, employee billability is the single most important metric to track. So what happens when you don’t have it anywhere in sight? You lose control of profitability.
At any given time, you should know how much of your employees’ time can be charged to projects directly and make the necessary changes if billability dips.
In order to keep on top of this, you will want a real-time dashboard that shows you performance in terms of actual hours billed, percentage billable and also the actual sales rates achieved per resource, department or the entire company.
Don’t waste time on clients who don’t produce much profit margin for your business. That’s a surefire way to slow down growth, and they may even be burning through non-billable hours you’ll never get back.
You’ll need to know client profit percentage per month, per quarter and per year to know the value they’re contributing to your services firm. Flagging client profitability may indicate the need to reach out to the client and see if there’s something you might need to fix, or that it’s time to move on. You’ll also want to look for client profitability patterns by size, industry type and so on to identify the most worthwhile subsects of the market you should target.
Will you have the funds to put your business plans into action along your growth trajectory? Check your revenue forecast.
Revenue forecasting is fundamental to the Q2C cycle, yet many services firms aren’t using Q2C software to deliver instant and correct forecasts. Too many are still using bad data and forecasting slowly by hand while forecasting elements are shifting all the while.
Quote-to-cash solutions are there to automate revenue forecasting based on the correct formula:
Actual revenue + revenue combined from your planned and unplanned order books + projects in your pipeline = your revenue forecast.
Want to take on more projects? You need to know that you’re adequately staffed for the work, which means you need proper resource forecasting in your software.
Your Q2C tool will enable you to forecast resource requirements and allocations for live projects as well as pipeline opportunities many months into the future. It should also give you a heads up about any projected downtime so you know when you need your sales team or team leads to step up their efforts.
A graphical GANTT type view will help, especially when it is a “live” view that is immediately updated when project planning changes. Or indeed when a sales opportunity is closed and placeholders need to be replaced by actual teams or pencilled-in time is now locked.
Days Sales Outstanding
As they say, cash is king. Things that negatively impact the days it takes before your bills are paid are:
- Overly long payment terms
- Correct address and recipient
- Line item accuracy
- Compliance with contract
- Clarity of description
- Customer satisfaction
This is the perfect Q2C illustration. In this one process alone, we have all the actors in your business.
Sales decide terms, sometimes with support from Legal or Finance. Sales also ensures that CRM entries for address and invoice recipients are correct. Finance or Admin needs to ensure that these details are correctly entered into your finance system. Certainly for time & material projects, the hours that appear on the invoice need to be concise and complete for that billing period so that you don’t drain cash.
Your Delivery Teams have a role to play in making sure their time is tracked correctly in time-tracking software. Project Managers validate time entries and ensure that descriptions of pieces of work are clear as per the client agreements. They also safeguard budget and completion in a project management tool and should flag and handle any customer satisfaction issue. When timelines are slipping because of staff availability, they will require resource planning tools to predict and manage these crunches.
Getting all these actors to pass the baton correctly and on time is the key to getting paid on time and in full. Having all these application silos removed by Q2C software will help them tremendously.
If silos exist in your quote-to-cash structure, they will undo it. This should come as no surprise–after all, Q2C is a relay race. As a team effort, it cannot function when your racetrack is riddled with holes.
Q2C software makes the path smooth and predictable. It ensures you can focus on the things that make your business grow tangibly: billable work, timely and correct invoicing and real-time metrics to measure performance. Ultimately, this is what will help you drive up billability, productivity and profits–and why fixing your Q2C process can’t wait.
So what are you waiting for?
Pick a winning Quote-to-Cash system
Our FREE Buyer’s Guide answers key questions to help you find the best Quote-to-Cash PSA solution to grow your business and profits.