Service To Cash Flow

Service To Cash Process

Service to cash normally refers to the business process for receiving and processing customer sales. It follows “Opportunity to Order” and covers business-to-business(B2B) and business-to-consumer(B2C) Sales.In many business models a contractual relationships is established via a contract or subscription. let us see how both this works in different scenarios

Type of Service Contractual Relationships

1. Service contract

Service Contract is an agreement whereby a contractor supplies time,effort and or expertise instead of a good.one should always make sure to have a binding service contract before doing business with someone we do not know, in order to avoid unexpected maintenance costs, a company will often purchase a service contract for expensive or complex machinery since the contract has a defined cost and time period.

2. Subscription based

Subscription billing service is a system or process of billing consumers on a time determined basis for products or services that they receive. An example is a recurring monthly invoice for access to pay-per-franchise, pay-per-use, and pay-per-field/technician/employee. Cost can range from $20 per month for a un-bundled solution that does not include carrier data charges to upward of $200.

Whatever the contract type is deliberate- CFOs or Finance controller or Executive teams are rarely kept awake at night worrying whether a payment has been made, worrying whether money has been received is quite a different matter. Although payment is an important area on which to focus, it may be more valuable to prioritize  collections in many companies as the benefits are more tangible, to ensure that cash is collected earlier, creating cash flow to fund the company’s activities.

Service to Cash  Flow

Let us now now see how the service to cash flow works . The brief illustration is as explained below

1. Service to Cash process automation unlocks efficiencies such as operational, Maintenance and service rendered

2. The Service To cash process begins with  everything required to manage and process services rendered to customers and collecting money from customers . One common thing between service and cash is that both are dynamic in nature meaning if there is a scope change for the services being offered then there will be change in the payment to be made .

3. Once a service is rendered as per the SOW, billing plays vital in the complete service-to-cash as it triggers the financial transaction with the customer. Scenarios for billing vary from once a service order is executed and or partial payment paid before the start of job with remaining paid after once the job is completed.

4. On booking a service order over repair, the SOW may include the warranty and basing on the warranty the pricing is automatically calculated in the Field Management software

5. Automating the Account Receivables process offers an array of benefits, all of which improves efficiency, cut costs and has a direct impact on cash flow, so there’s no doubt improving A/R process can significantly enhance the bottom lines

• Credit Management: Field Service Technicians  providing the services, checks if the prospective customer is of  sufficient creditworthiness to warrant the supply of the services under credit takers .

• Bill Distribution: Bill takes place subject to billing after once a service is completely rendered or in cases of recurring jobs partial billing is done . whilst billing is subject to the scheduled frequency concurred in contract.

• Collections : The field service technicians may be paid with cheque \ cash  and basing on the mode of payment,Back office staff identifies the customer collections into companies bank account, books into the A/R system, identifies invoices that are short paid/ unpaid as of the due date & allocates it to an bill & ensure reconciliation

• Dispute Management : The customer disputes the service availed and disputes the adherence to the service level obligations committed basing on the spares used, warranty for the service.

Service to Cash Metrics

Although companies will apply metrics at different stages of the service-to-cash process the most significant metric from a liquidity and working capital perspective are

1. Reduce Days Sales Outstanding or DSO :

DSO can vary from month to month, and over the course of a year with a company’s seasonal business cycle. If using DSO, it is important to analyse trends , For Eg: increasing DSO may be an indication of customer dissatisfaction or that extended payment terms are being offered (perhaps for competitive reasons or sales target pressures).

2. Reduce receivables processing cost/time :

By reducing the receivables processing time will improve the better cash flow , improved efficiency and managed working capital to fund business operations and new growth opportunities.

3. Reduce Customer-to cash cycle

By ensuring the data quality of the invoice, removing the potential of data  errors  by removing the need to re-key data will improve the customer-to cash cycle

4. Manage credit risk

By analyzing the reports of the bad credit by customer wise, area wise will help Businesses to identify the faulty customers who tries to engage in disputes, fail to settle payments on time so that they can be tracked and take actions against them to collect timely payments.

5. Losses from bad debt, and collections expense.

  The amount reported  in the bad debts expenses is the loss that occurred from extending  credit during the period of time indicated in the heading of the income statement  so  keeping track of items will help us saving the cash.

Discounts

Cash rebates can be given to the regular customers so that they stay loyal to the service providers and for them to keep coming back . Referral schemes can also be given so that they will get a vouchers which they can use while purchasing any retail good for household purpose, and on the condition the voucher are valid for a successful transaction by the referral customer.