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What is the Virtuous Revenue Cycle?

One of the core concepts in our book Let The Cash Flow is the Virtuous Revenue Cycle (VRC). In a nutshell, the VRC describes key steps in effective revenue management that ensure you delight your customers and get paid on time.

The VRC is focused on service, trust-building and cultivating customer loyalty. It is the antithesis of an adversarial customer-supplier relationship that involves disagreement and chasing down unpaid invoices. Early and constant customer contact lies at the heart of the VRC.

Here’s a primer on the crucial activities that make up the VRC:

1. Top-down ownership

Leaders in a company must fully embrace and lead the adoption of the VRC. This ownership has to be direct and visible, and top executives have to lead by example in order to shift the company culture towards one that fully buys into the VRC. This factor is essential for the long-term success of the VRC.

2. Clear credit policy

Every customer has to sign a credit policy that clearly lays out the following: service expectations on both sides, payment terms, how to deal with discrepancies when they arise, key people and their contact details, and the timing of future reviews of this credit policy.

3. Prompt and accurate invoicing

Make sure that the acceptance criteria for your invoices are clear, and that these criteria are met. This minimises the likelihood of late payments occurring due to invoice errors.

4. Proactive customer service model

Contact your customer immediately after you have invoiced them, and not only when the payments are late. Early and consistent contact reinforces your commitment to service, and shows that you are willing to address any issues and resolve them promptly.

5. Prompt discrepancy resolution

When it comes to payment issues, a discrepancy could mean errors and omission of certain details on your invoices, or a lost invoice. Contacting customers immediately after sending your invoice means both parties have time to resolve such discrepancies. Within your company, make sure that you have clearly designated who is in charge of resolving which types of invoice-related discrepancies.

6. Systematic root cause elimination

Document the discrepancies reported by your customers, so that you are able to identify the issues that are holding up the bulk of your invoices (by value). Resolve these discrepancies at the source to nip this problem in the bud.

7. Engaged and motivated sales team

Sales staff spend a lot of time with customers. For the VRC to work, you need their buy-in. Sometimes, you may find that sales personnel believe that pressing customers for punctual payments will damage customer relationships. That is a myth, and you have to hold firm on this issue. Put sales training programmes in place to reinforce the importance of service that is geared towards fostering timely payments.

8. Balanced scorecard

On a related note, you need to create measures of success that gear everybody in your company towards the goal of timely payments. For instance, if your sales team earns bonuses based on sales figures, while your administrators are evaluated based on how punctual your customer payments are, their approaches to their work will potentially be in conflict. Adjust your renumeration schemes so that everyone is incentivised to prioritise good customer service that ensures timely payments.

Topics

  • Business enterprise, General

Categories

  • late payments
  • invoice
  • virtuous revenue cycle
  • customer service
  • cash flow

Contacts

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