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How can you calculate the ROI of billing performance improvements?

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Billing performance is a crucial aspect of corporate accounting, as it affects cash flow, customer satisfaction, and compliance. Improving billing performance can have a positive impact on your bottom line, but how can you measure the return on investment (ROI) of your efforts? In this article, we will explain how to calculate the ROI of billing performance improvements using a simple formula and some key metrics.

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Tomi Akinwale ACCA, ACA, ACTI, B.TECH, FMVA, AAT.

Tax | Deloitte | Financial Reporting & Modelling |

1 ROI formula

The basic formula for calculating the ROI of any project or initiative is:

ROI = (benefit - cost) / cost

In the context of billing performance, the benefit is the increase in revenue or profit that results from improving your billing processes, such as reducing errors, delays, or disputes. The cost is the amount of money or resources that you invest in implementing the improvements, such as hiring staff, buying software, or training employees.

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Tomi Akinwale ACCA, ACA, ACTI, B.TECH, FMVA, AAT.

Tax | Deloitte | Financial Reporting & Modelling |
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Calculating the ROI of billing performance improvements involves measuring the financial benefits gained against the costs incurred to implement those changes.

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2 Revenue metrics

To estimate the benefit of billing performance improvements, you need to track some revenue metrics before and after the changes, such as the average number of days from the completion of a service or product delivery to the issuance of an invoice, the average number of days from the issuance of an invoice to the receipt of payment, the percentage of invoices that are correct and do not require adjustments or corrections, the percentage of invoices that are disputed or rejected by customers, and the percentage of customers that continue to do business with you after receiving an invoice. By reducing billing cycle time, DSO, and billing dispute rate, and increasing billing accuracy and customer retention rate, you can increase your revenue and profit. Calculate the benefit by multiplying the difference between the before and after values by the average invoice amount or the average profit margin.

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Tomi Akinwale ACCA, ACA, ACTI, B.TECH, FMVA, AAT.

Tax | Deloitte | Financial Reporting & Modelling |
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You have to express in monetary terms. E.g increased revenue can be calculated as the additional money received due to faster payments. Cost reduction can be measured as the amount saved on manual processing or late fees.

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3 Cost metrics

To estimate the cost of billing performance improvements, you need to track some cost metrics before and after the changes. These metrics include the number of employees dedicated to billing tasks, the average salary of billing employees, the amount of money spent on buying or subscribing to billing software or systems, and the amount of money spent on training employees on billing processes or software. By adding up these metrics and multiplying the difference between the before and after values by the relevant time period, such as a month or a year, you can accurately calculate the cost of billing performance improvements.

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4 ROI calculation

Once you have estimated the benefit and cost of billing performance improvements, you can plug them into the ROI formula and get a percentage value that indicates how much return you get for every dollar invested. For example, if you spend $10,000 on billing performance improvements and generate $15,000 in additional revenue or profit, your ROI is:

ROI = ($15,000 - $10,000) / $10,000

ROI = 0.5

ROI = 50%

This means that for every dollar you invest in billing performance improvements, you get 50 cents back in revenue or profit. You can use this value to compare different billing performance improvement projects or initiatives and decide which ones are worth pursuing.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Ripon Bhowmik FCA
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Calculating ROI involves several steps. Firstly, quantify the costs associated with implementing the billing performance improvements, including any software or technology upgrades, training expenses, and personnel time invested. Next, estimate the potential increase in revenue or cost savings resulting from the improvements, such as reduced billing errors, faster invoice processing times, and improved cash flow. Then, subtract the initial investment costs from the expected financial benefits to determine the net gain. Finally, divide the net gain by the initial investment and multiply by 100 to express the ROI as a percentage. Regularly monitoring and reassessing the ROI over time allows for ongoing optimization of billing processes.

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How can you calculate the ROI of billing performance improvements?

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1 ROI formula

2 Revenue metrics

3 Cost metrics

4 ROI calculation

5 Here’s what else to consider

Corporate Accounting

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