The quote-to-cash process, also known as the Q2C process, is one of the most essential aspects businesses need to understand to improve their revenue generation. It consists of understanding the entire process of what happens after a business intends to make a sale, all the way to when revenue is actually produced and money is made by the business. In other words, it is the entire sales cycle throughout a business, including its order management, cash flow, and even the accounting functions.
Businesses need to understand Q2C in order to make improvements in whatever areas they need to increase their revenue, help improve customer experience, and customer satisfaction. This ensures that customers keep coming back and making more sales. Have you ever wondered what happens behind the scenes before businesses make actual sales? Read on to find out what a Q2C process is and how understanding it can maximize your business outcomes.
What is a Quote-to-Cash Process?
Any process that is involved in making sales for a business is part of the quote-to-cash process and involves an entirety of different departments, from sales to finance. Let's dissect the quote-to-cash process step by step and explain each step in detail.
Issuing a Quote
The Q2C process begins before a business even knows that they have reached a customer who intends to make a sale. Once the business learns about the customer, the sales process may begin. The business will then issue a price quote to its customers.
The quote process is critical and requires that a business understands its customers and issues a quote at the right price. Depending on the quote given, the customer will make a choice about whether they will continue to do business with them or find a different business that can offer the same services rendered at a much lower price. This is why it is important to take time to research the market and be able to offer a reasonable quote.
Creating the Contract
Once the quote is issued and the customer and business both understand that the sale is intended to happen, the contract terms are created. Contract terms refer to a set of details that are agreed upon between the customer and the business.
With contracts, businesses and clients can include anything that is important to each of them for the completion of the transaction. Contracts typically include time frames of when the order will be complete and when payment can be expected. A contract may also include details of further orders that may be expected for both the customer and the business.
Additionally, the terms include any additional fees that may occur if the order is not fulfilled in a timely manner.
The contract is an essential part of quote to cash processes. This is because once the contract is completed, the actual sales processes can begin.
Contract Negotiations
At times, the business and their customer may need to enter into a contract negotiating phase. This may happen for many reasons, including if the contract terms may need to be adjusted. For example, the accurate pricing may not have been on the contract and the customer would like the pricing to be revised. This happens when the pricing that is included in the contract is not the price quote that the business initially offered to the customer.
The contract may need to be revised for other reasons. This can be due to certain timeframes and making sure that the order fulfillment meets all the requirements that the customer is expecting.
Once the business and the customer agree on all of the terms of the contract and the final contract is issued, then the next step of the quote-to-cash process follows, which is fulfilling the order.
Order Fulfillment
When the order reaches this phase in the quote to cash cycle, a lot of different departments are involved to ensure that the order fulfillment process is handled appropriately.
First, the order is at the hands of the sales team, who initially provided quoting information to the customer. After the sales team, the order is sent to an order fulfillment center, such as a warehouse, to prepare the actual order. Once the fulfillment center processes the order, it is then shipped to the customer in hopes that there are no errors making it to the customer.
At this point, the quote-to-order process has been completed.
Once the order fulfillment phase of the quote-to-cash process is complete, the order is then taken over by the accounting department.
Accounting
An order reaches this phase of the quote-to-cash process once it has been fulfilled. This allows for the business to be able to issue an invoice to the customer.
Many of the terms that were discussed during the contract creation phase will be included in the invoice, such as pricing and time agreements. Additionally, it will ensure that there is a date that indicates when payment is expected.
Some invoices will also include a payment link to make it easier for their customers to make that final payment. Once the payment collection process takes place, the next step of the quote-to-cash process begins.
Revenue Recognition
After payment is received by the business, the quote-to-cash process is then transitioned on to accounts receivable. Accounts receivable is in charge of making sure that the payment is made on time. They handle the account for that particular customer.
After the payment is made, revenue recognition will be calculated more accurately by finance. It is important the invoices and the sale prices are all balanced to avoid inaccurate revenue recognition. After all, it is important that finance teams have the correct information in regards to their revenue management so that they may plan accordingly.
Renewals
The final step in the quote-to-cash process is the renewal step. Typically, this step will fall back on the sales team and require that they be involved in creating detailed reports to understand their customers and make sure that they have provided them with a quality customer experience.
The sales team has to engage clients in order to attain customer renewals. Most businesses make the majority of their recurring revenue from repeat customers, which is why the customer relationship is essential in the quote to cash process.
What are the Benefits to Businesses Who Understand the Quote-to-Cash Process?
Having a clear understanding of the sales cycle is imperative in helping businesses plan for improvement. It allows for reporting capabilities to be used in the best way possible so that appropriate steps can be taken for managing revenue.
Benefits of Understanding Quotes
During the quote-to-cash sales cycle, the first step is issuing the quote. By understanding this process, businesses can plan on whether their sales teams are quoting customers in the best possible way or if they should consider a different option, such as a configure price quote software.
A configure price quote software, or CPQ, is a software that sales professionals use to automate their quote process. Providing a quote can be time consuming, but with CPQ software, businesses can save time by offering their customers quick turnaround time with accurate quotes.
This is only one example of how understanding sales cycles is beneficial for businesses.
Benefits of Understanding Accounting Systems
While the sales team may not be entirely aware of what the finance team is responsible for, it is essential that they understand the basic invoicing process in order to avoid invoicing errors. If finance and sales have to go back and forth resolving unnecessary invoicing errors, this wastes not only time for the business but for the customer as well.
The accounting systems generate invoices using information that they attain from the contract. If the sales reps and the customers agree on different terms and these terms are not communicated to the appropriate department, it can result in errors on the invoice.
By understanding sales cycles, businesses can identify how to implement a system to generate accurate invoices in a timely fashion and avoid the errors that are costing both time and money for the business.
Benefits of Understanding Renewals
Another example of how understanding quote-to-cash can be beneficial for businesses is during the renewal option. It is important that sales reps understand not only their customers but also the market in which they work in. This is important because it allows them to be prepared to offer pricing and promotion strategies that will encourage customers to continue to come back, therefore creating more sales opportunities.
Final Thoughts
As you can see, there are many benefits to understanding how quote-to-cash works for businesses. By understanding it, businesses can gain real time data from their employees and spend some time analyzing ways in which to improve the business. Maybe there is a delay in the quoting process that can be eliminated by using software, or maybe there are continuous proposal errors that are slowing down sales. Whatever issues a business might be having, understanding the sales cycle is essential in executing a plan to make improvements to the overall process of the business.
