Will migrating to ERP solve your accuracy in invoicing? If we cannot afford, can we do the Process transformation and run with legacy tools?

In the CFO forum, I often hear about businesses struggling with process challenges, delayed closing due to delayed revenue recognition/ invoicing, etc. When I shared how we dealt with such issues, some friends encouraged me to share my experience with a larger audience. This is my maiden attempt to share my experiential learning on how we went about a process transformation project on Revenue recognition as per ASC 606 and to ensure timely invoicing.?

?Why processes fail

It is natural for a CEOs to show their frustration to CFOs when invoicing delays happen as it may impact business. This shows Finance team in poor light and even may become a deflection point. Does this sound familiar? Then read on…

Many of these failures are attributed to people-based processes that are often challenged when there is steep business growth or churn in the team. If these are not addressed quickly it can get chaotic. In the current situation of rising costs and stretched margins, having a robust and smooth back office operation is critical to ensure success.

I faced such a situation in my new job some years ago . In the first meeting CEO expressed his frustration about invoicing issues. During the initial discussions with the Business and Finance teams, it was evident that these were the key and core issues. The monthly financial closure took 45 days. ?The company was operating with a mid-market CRM and QuickBooks.

The Quick fix

Often we jump into complex transformation techniques spending a lot of dollars or think moving to an ERP is the solution. Solutions that are not complex and can be achieved with the existing team. We used the steps listed below to fix it quickly. This can be used universally for resolving such process issues.

?Step 1: Identify key stakeholders:? In this case, we onboarded key process stakeholders in the workflow i.e. representatives from the business (delivery) team and Finance. They did not realize initially that they were actually being inducted into a Six Sigma project.

?Step 2: Map the Process Flow: We drew the process flow chart on the whiteboard and the existing RACI matrix (RACI-Responsible, Accountable, Consulted and Informed) as understood by individual sub-teams in the process flow.

?Step 3: Understand the failure points: We patiently listened to each team member’s views on issues that they observed and noted down the failure points on the process flow chart / RACI Matrix

?Step 4: Evaluation/ initial solution: We discussed the additional checkpoints needed based on known failures (experience)

In this project we found this step to be the most critical one. We re-defined ownership (updated the RACI matrix), and inter-team handoffs with quality checks. We all know that anything that is measured gets done. Establishing accountability & defining quality helped.

?Delivery team responsibilities were re-defined as per process flow/RACI:

-? To provide correct summaries of approved timesheets to be billed for project resources.

-? Onboarding resources into the project only based on the agreed Purchase

??? order/Statement of Work (PO/SOW)

-???The summary was to be provided in an Excel approved by the project manager

-?????Submit reviewed/approved timesheets for (i) Payroll and (ii) Revenue recognition.

This also gave us visibility into unbilled time on the project. We used this in Phase II for the margin improvement.

Finance team responsibilities were also re-defined

-???Validate approved time summaries, and match them with the approved timesheet

- ???Invoice as per SOW/PO and flag discrepancies, if any, with the Delivery team

-????Meet SLA and get delivery sign off before it is sent to the Customer

?-????Have a meeting to review inputs for Revenue recognition at month end for each

????? project based on the timesheet approved/ not invoiced for each project to meet

????? ASC606 (Revenue Recognition standard of US GAAP) requirements

?“The Magic happened” ?

There were very few errors after the first cycle. Most were attributed to subsequent changes in approved hours after it was initially approved. We also found that the timesheet efforts approved included work done outside SOW terms and we needed supplementary work orders to invoice.

We reviewed these issues and refined the process quickly within two billing cycles. We cut down our monthly closing time to 2 weeks from 6 weeks

?Step 5: Refinements based on learning

Further refinements were made based on the implementation results of the initial solution. Success was institutionalized after we formalized the RACI matrix and got a quality dashboard in place for key KPIs

?Step 6: Margin improvements

The teams became close buddies and they celebrated their Six Sigma project success. We further refined the process by implementing Business Finance steps to improve margin. Created a budget for the project and implemented a margin sign-off process before the project work order was accepted. We improved margins significantly as the delivery team knew what they budgeted for before they committed the expense.

?Step 7: Process Maturity

We further improved these processes by educating non-finance stakeholders on ASC 606 and implementing additional processes to improve revenue forecasting and budget controls. We subsequently moved to ERP after stabilizing the processes to further improve controls

?To sum up, often the issues relate to process clarity, unclear RACI matrix, and quality checks. Automation (say moving to ERP) could be attempted once we get these process flow in place. ERP forces these but often come with heavy overhead and may be challenging for small businesses. Simple solutions exist and with teamwork, we can achieve magic without spending a lot of dollars.

?Hope you found this useful. Do share your feedback. Thanks

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