Unlocking Cash and Revenue Opportunities with Revenue Assurance
Magazine du trésorier
The Revenue Assurance practice was created in response to the telecommunication industry’s struggle with revenue leaks and desire for lowering operating costs when delivering services to their customers. Strengthened by the economic pressure, many telecommunications providers have been moving from a growth-based business model, in which success is measured in terms of subscriber numbers and traffic volumes, to a value-based model, where success is measured by realized margins and profitability. This shift in emphasis pushes the operators to continuously deliver new products and services to capture customer loyalty, placing even more strain on back office infrastructure and billing systems.
Revenue Assurance is not only applicable to the telecommunications industry
Similarly, a wide panel of organizations, such as utilities, media and broadcast, e-commerce, healthcare, logistics and financial services, faces the same difficulties in safeguarding their revenues. A common pattern results from a number of shared characteristics. These mainly include huge transactions, a large number of customers, small revenues per client, complex and interfaced environments and third party involvement.
If your business falls into any of the aforementioned industries, your systems and processes across your business are probably suffering from revenue leakages, indicating that you are not enable to collect all of the revenue to which you are entitled. A number of critical activities contribute to revenue leakage, such as incorrect customer accounts provisioning, fraud, inaccurate billing, ineffective collections, theft, etc. Recent surveys and studies have revealed that leakages range from 1% up to 7% of gross revenue, depending on the level of maturity of the processes and controls environment.
A common value chain as a scope for Revenue Assurance
Many points of leakage exist across the common end-to-end value chain, which are the core processes in scope of Revenue Assurance, from the design and launch of new products through to provisioning and order management, partner management, usage and fraud management, billing, customer management, cash collection, and finance and accounting processes. Management awareness, combined with billing accuracy regulatory requirements, has been forcing telecommunications providers to increase their level of internal control to ensure they are operating (and generating revenue) at the highest levels of efficiency and effectiveness.
An end-to-end approach of Revenue Assurance initiatives results in a direct impact on the business value by either increasing revenue, reducing cost of write off’s, optimizing the working capital benefits or minimizing operating costs. Some concrete gains across these four areas include, respectively, the reduction of unbilled events, the reduction of bad debt through upfront vetting of new customers paired with a proactive customer risk management, the improvement of cash collection mechanisms lowering the “Days Sales Outstanding” measure, and the balanced effort towards more proactive rather than reactive risk management.
Examples of common revenue leakages and missed opportunities tackled by Revenue Assurance
A key challenge for most organizations is to ensure the complete and accurate provisioning of their customers across all systems, such as the Customer Relation Management (CRM) and billing platforms. Both the synchronization issues between systems and the manual provisioning process are the underlying root causes of provisioning and de-provisioning errors. Failing to implement and monitor strong controls would have a direct impact on customer usage, cash collection as well as customer satisfaction.
As a second example take transaction assurance; this is the guarantee that all service transactions generated by the customers are captured and processed from the generating platform to the billing platform, and may result in major revenue leakages. The risk of losing billable events is proportional to the number of systems involved in their processing, and requires a continuous and end-to-end monitoring by Revenue Assurance.
The scope of Revenue Assurance also covers the overseeing of outstanding account receivables which are an indicator of process weaknesses, such as an appropriate dunning process or poor credit check procedures at subscription. Keeping track of bad debt using a specific dashboard allows maximizing revenue collection, enhancing cash flows as well as reducing potential write-offs by taking appropriate actions (e.g., shorter delays, increased pressure, proposed alternative payment method, etc.).
Revenue Assurance may also encompass inventory management. Indeed, significant opportunity loss might occur with an inventory shortage or, in contrast, a revenue loss due to extra cost resulting from an inventory excess leading to obsolete products, high storage costs, etc. An ageing analysis of the inventory should mitigate these risks.
The above standards for operational leakage and products and services proposed to customers may not always be profitable due to the volatility of cost models and the significant amount of third parties involved in the day-to-day business. Therefore, being able to closely monitor the revenue streams margin by Revenue Assurance provides TOP management with a powerful tool facilitating completion of their business objectives. In addition, over a period of time this practice guarantees that the products and services provided remain in line with their business case expectations.
Revenue Assurance is becoming one of the most effective practices for companies seeking revenue from another dimension other than the traditional customer market segment. As a result, revenue leakage prevention methods and cost saving measures are emerging as some of the most effective approaches for executive management to meet their growth objective within the current environment of financial turmoil.
By Brice Lecoustey, Senior Manager, Advisory Services, EY, Luxembourg