Numerous responsibilities and concerns rest upon the shoulders of business owners, making aspiring entrepreneurs think twice about whether becoming a patron is as straightforward as it seems. Managing a business is, at the end of the day, about making profits, ensuring employees’ stability, and continuing to scale up the business and unlock its full potential. But what do you do when you draw the bottom line at the end of the year and observe vast amounts of capital wiped off, not knowing the culprit or broadly blaming the losses on poor data processing in the billing process?
Revenue leakages are a critical problem in today’s data-intensive organizations. Yearly, they siphon off millions of dollars from their total revenue, with substantial portions of funds flying unnoticed from the businesses’ pockets. Because it’s difficult to determine how and when revenue leaks happen, organizations often need help creating and using adequate measures to counteract the phenomenon. But as more leaks are overlooked, the more substantial the impact on the company’s profits in the long run.
Here’s everything you need to know about revenue leakages to enhance your collection strategy.
What exactly are revenue leakages?
As the name suggests, revenue leakage represents lost funds from a business due to ineffective billing, administrative, or financial errors. It can result from a wide variety of sources depending on the operational processes within a company and often needs to be noticed, with exact or even estimative figures being challenging to calculate. But as a general rule of thumb, businesses dealing with these losses in revenue see their earnings reduced by 1% to 5%.
Some examples of revenue leakages to help you gain a clearer picture of the matter may include the following:
- Unclearly defined or unavailable policies
- Missed payments and invoices
- Incorrect tracking of tasks
- Unearned discounts.
Unfortunately, these losses are silent killers because they’re hardly traceable or fixable. However, there are some common culprits behind these revenue-reducing factors and ways to reduce them, if not stop them completely. It’s not smooth sailing, but fixing them can be relatively easy. It all starts with finding the culprits, so let’s move on to the commonplace causes behind the revenue leakages in most businesses.
What are the common causes of revenue leakage?
As previously stated, determining what causes the revenue leakages is not child’s play and can be tricky. However, in most situations, some culprits are generally recognized as leading to revenue leaks. Manual processing can be a major factor, especially for software-based or subscription-based companies where automation isn’t implemented in the billing systems. Invoices must be generated in synchronicity with the moment that sales are being finalized. Businesses can use specific software and apps designed to automate client billing to improve the accuracy of the billing process and remove errors from manual processes. Through the online management of systems, companies can facilitate numerous tasks, such as time and expense tracking, ultimately ensuring that billable data is correctly and accurately introduced.
Once manual labour is taken out of the equation, cumbersome spreadsheets with errors and omissions become a thing of the past. Spreadsheets are also significant culprits behind revenue leaks because the data can contain mistakes, and underbilling is possible since it’s hard to determine the exact time an assigned person needs to go through the abundance of information. The specific information needs to be integrated with a billing program, possibly resulting in additional failures from unsuitable technological tools. Regardless, using the right software can eliminate these inefficiencies and streamline the billing process, saving significant money and time for more parties involved.
Other factors with the potential to cause revenue leakages are outlined as follows:
- Pricing errors stemming from different situations like a customer that receives a discount without meeting the threshold criteria
- Disorganized data or data that must be puzzled from multiple systems, leaving a seller in the dark about the exact volume that’s traded
- Inefficiency in providing salespeople with the needed information in the necessary timeframe or updating data
- Ineffective information flow that prevents employees from telling billable from unbillable data
- Penalties that should be paid on time regarding different customer actions.
Moving on, let’s examine the strategies and preventive measures required to prevent these unintended revenue leaks from emerging.
Rely on automation
Among the most straightforward ways to ensure that the money needed to enter your organization is gathered is to introduce automation into your processes and systems. You can, for instance, use apps that automatically send invoices to clients on a pre-established schedule when invoices become overdue, which will help remove the inefficiencies and mistakes common in the process that disorganize your manual spreadsheets. In other situations, you can use a bot to notify and inform members of the finance team about invoices that have been left unpaid for too long, should they send emails to the customers themselves.
Managing processes online through an effective app gives you access to reports, analytics, and all the necessary data on the go using a mobile device. This way, you’ll make sure you stay connected and updated on everything that happens in your business.
Analyze the workflow
After determining the cause of the revenue leakage, the natural course of action is to trace the workflow and identify the root of the problem. For instance, the billing system may need an update, in the absence of which the invoice must be correctly generated. Other times, there may be delays in generating invoices or their payment. Tracing the workflow will help you find the exact cause of the problem.
Monitor revenue streams
After you’ve set up a workflow monitoring procedure, the next step is to look at and track all the revenue streams. These include every revenue source, from direct sales to offline sales to subscriptions, as well as data points like payment methods. These data points will help you find patterns or trends. The latter, for instance, can help you determine if there’s a preference among customers for a specific payment method. It can assist in uncovering potential problems with the payment page or gateway.
Stick to your pricing strategy
Salespeople offered a lot of flexibility to establish and provide discounts may sometimes obstruct the ultimate goal of maximizing revenue. A laid-back approach to enforcing contract conditions may hinder the company’s financial objectives. Your business must create concise, efficient regulations and rely on software to ensure the standards are implemented, thus making it easier for salespeople to offer discounts.
Revenue leakages can substantially drain a business’s profits, but with automation and the right strategies and tools, you can improve the collection process.