Imagine traveling in a boat that has a small hole at the bottom. The boat is slowly filling with water, and unless you do something to fix that hole, it will eventually sink, taking you with it. Similarly, if left unchecked, revenue leakages can cause your profits to drop significantly and leave your business struggling without capital.
In professional services organizations, revenue leaks often go unnoticed until their impact has become enormous. Most businesses are not even aware that they exist at all. These leaks are difficult to identify and control because organizations do not have the proper tools or mechanisms to point out the bleeding areas.
This blog aims to educate readers about why revenue leakages happen and how to identify, prevent, and stop them in order ensure 100% recognition of revenue that is due for the business.
What is Revenue Leakage?
Revenue leakage simply refers to the loss of revenue for any organization. As the name suggests, it involves preventable loss of revenues from your company. Revenue leakage most commonly occurs due to improper or inaccurate billing to customers; however, these losses can come from a variety of sources depending on how your organization operates.
Enterprises across verticals face the challenge of revenue leakages, despite having extensive inspections by in-house financial teams, advanced ERP, and robust frameworks for audits. Research suggests that these leakages are caused often due to miscommunication across departments, inadequate controls in the enterprise software, and other financial flows, such as inventory management, margin calculations, tax handling, and so on.
It can be quite confusing for an organization to recognize the exact cause behind any preventable loss of revenues. That’s why every forward-looking organization has started evincing interest in comprehensive SaaS-based revenue assurance solutions.
MGI Research estimates 42% of companies experience some form of revenue leakage, and EY indicates that every company should expect to lose 1% to 5% of realized EBITA to leakage.
Why do Revenue Leakages happen?
The preliminary step towards restricting revenue leaks starts with understanding how it happen in the first place. Knowing the potential vulnerabilities in your system and processes can help you minimize the loss that you are likely to incur due to revenue leakage.
Here are some prevalent causes of revenue leakages –
- Manual data entry: Human error while manually tracking time, creating invoices, and getting paid can easily give rise to data entry errors. Imagine the amount of revenue leakage happening when you enter “10” hours instead of “100” or send an invoice of “$5,000” to a client when you meant to charge “$50,000”. Simple mistakes like these are hard to detect and unavoidable wherever human intervention is required. Lost or inaccurate data again may result in similar revenue leakages by omitting certain key terms in the agreement.
- Missed invoices and payments: Have you ever thought about how much revenue you will lose if you miss sending an invoice to a customer? It is highly improbable that the client will come themselves and say, “Hey, you forgot to send in the invoice. Let me still pay you.” When you don’t have an automated tracking system in place, it is common to lose track of the billing cycle and miss invoicing the client when it’s due.
- Varied pricing and billing requirements: Different clients may have different billing requirements based on the country from which they are operating. The varying payment methods, currency conversion, labor laws, and contract terms make billing an even more complicated affair. Without attributing the correct cost for a given time frame may cause you to bill less than what you were actually owed.
- Tracking fewer tasks: Many employees spend a significant amount of time replying to emails, attending meetings, or staying idle, reducing their overall productivity level. Not adding such granular tasks and information may again cause you to gauge the scope of the project incorrectly and bill clients for far less than your initial estimation.
- High cost per customer acquisition: While it is common for businesses to spend time and resources on customer acquisitions, draining your entire marketing revenue towards acquiring a handful of clients may not be the best strategy to follow. The managers need to calculate the time spent on negotiations, pre-sales, and delivery to set logical time and resource benchmarks for future clients.
What is Revenue Assurance?
Revenue assurance is the application of processes and practices which enable an organization to capture revenue accurately from the available sets of products and services. Organizations embrace this proactive approach to identify and eliminate risks and errors. Enterprises leverage revenue assurance tools that go through the entire revenue cycle to find and plug the revenue leakage points, which helps organizations maximize revenue.
How to Prevent Revenue Leakage?
Revenue leakage is not something any organization – be it a conglomerate or a startup – can afford to neglect. Once you know the areas where your business is likely to leak revenue, you can prepare an action plan to prevent these leaks before they can cause any lasting damage to your business.
A few examples that can help you curb revenue leakage at your organization are documented below:
- Automated systems – By centralizing and automating your processes, you can stop the existing leakages and also prevent such leaks from happening again in the future. When processes are centralized, automated, and approved in real-time, invoices and timesheets can be sent, monitored, and tracked on-the-go.
- Data validations – Adding validation checks across different systems ensures that the data entered is correct. Any failures need to be flagged to the appropriate department on time so that corrections can take place before sending the final invoice to the client.
- Real-time Visibility & Insights – Data analytics helps you track your data and cash flows to find anomalies or detect delinquent transactions. Real-time visibility also helps in tracking accurate resource utilization and efficiency of the team to enhance the customer experience. Furthermore, the time spent on any additional task can be tracked down, adequately planned, and utilized in a much more efficient manner towards project billable time.
- Client engagement and transparency – The best way to engage your client is to deliver on all accounts and provide them with transparency. If they are in the loop and understand the work that is getting done, what is the billing to expect and future timelines well, it simplifies overall billing and fewer questions get asked.
- Count on Revenue Leakage Audit – No matter how meticulously you have drafted the revenue leakage prevention strategies, you will need to examine and analyze business processes separately to identify and eliminate revenue leakages. That’s where revenue leakage audit can be quite helpful. Revenue leakage audit helps you identify the main source(s) of the leaks and tackle the challenge in the most holistic manner.
Need for an automated time-tracking and invoicing system
Money falling through the cracks is a differentiating factor that defines whether your business will be successful or not. It is easier to implement tactical changes to stop revenue leakages, increase profitability and streamline processes rather than letting go of your valuable assets and cut costs.
An automated time tracking and invoicing system not only helps you regain a significant amount of lost revenue but also eradicates errors by creating accountability and transparency. It reduces the manual time spent on the billing process and also helps prevent overpayments.
Additionally, having a mobile solution further makes it easy for employees and leaders to log, access, and approve every detail on-the-go. Instead of logging hours on a piece of paper or spreadsheet manually, you can just swipe and enter details on your mobile. The software can even send you reminders and sync data automatically to give you complete and real-time data visibility anytime, anywhere.
Revenue leakages can be suppressed and don’t have to come in your way of doing business. Maximize your revenue with Polaris as our agile platform gives you control over all aspects of your revenue – from innovative models to monitoring and reporting on performance. Polaris is simple and easy to use – its adoption is quick and comprehensive – ensuring that everything is reported accurately and the threat of leakage is eliminated.