While sales and profit look great on paper, cash is what keeps your business afloat. Cash flow hiccups can put a strain on your operations — and make your job much more stressful.
That’s why it’s so important to stay on top of your company’s service-to-cash cycle.
What is the Service-to-Cash Cycle?
It’s the gap between when (a) a technician completes a job and (b) accounting receives payment.
The clock for service-to-cash starts ticking the moment the job is done, not necessarily when the customer is invoiced. This makes service-to-cash a more accurate (and useful) measure of your financial and operational efficiencies than delinquent receivables based on invoice date.
Why? The longer the lag time between the service and invoice dates, the greater the cash flow crunch you’ll deal with, even when the customer consistently pays on time. The service-to-cash figure helps you spot any bottlenecks in service ticketing and billing workflows, so you can get paid faster.
Ideal service-to-cash cycles vary by business and industry. For reference, Aberdeen Group research suggests that top companies operate with service-to-cash cycles of nearly 26 days, while average companies take more than 34 days to get paid.
What Causes Long Service-to-Cash Cycles?
Find the culprit by examining your service-to-invoice processes. This is the area where most payment delays will occur — and where you can make the biggest improvements.
“Service-to-cash is a huge problem for service organizations that can be cured, literally, overnight.” — Dave Hart
Think about bottlenecks that could delay invoicing: What are the steps involved from creating the work order to issuing the invoice? Are your technicians using paper-based service tickets in the field? Must they wait until the end of the day (or later) to enter the job information into an electronic format? Does your back office staff need to manually enter the technician’s ticket into a separate billing application?
“Technicians often jot down job details on a piece of paper and put it in their back pocket, intending to log that information as soon as they can get around to it,” says Dave Hart, vice president of global customer transformation at ServiceMax. “That could be the end of the day, the end of the week — or never. Whatever the case, any delay pushes out the invoice date. Next thing you know, it takes more than two months to get paid.”
What’s the Impact of Long Service-to-Cash Cycles?
Long service-to-cash cycles tie up excessive amounts of cash for working capital, instead of using that money to grow the business.
“Think about the working capital that’s required to service debt that is 60 days old,” Hart says. “If your invoice terms are 30 days, you expect to have sufficient cash on hand to cover 30 days before you start receiving payment. But if that timeframe is 60 days, you need twice the amount of cash on hand just to service the debt and keep your business going.”
How Can You Improve Service-to-Cash Cycles?
Think of the solution in terms of this formula: Visibility + Automation = Service-to-Cash Acceleration.
Visibility: What labor rate does a particular customer pay? Which parts of the job are covered under warranty or service contract? When you equip technicians with instant access to the right customer information in the field, they can more efficiently create service tickets that expedite the customer approval and billing process.
Automation: Visibility into customer data is only the first step. You still need to automate the work order process to achieve shorter service-to-cash cycles. The solution is to empower your techs to record and close work orders in real time while on-site, with the ability to generate courtesy invoices on their mobile devices. Your customers can then sign-off electronically and approve the work done, parts used and labor time spent. With this information already captured in the system, your back office team can issue the invoice to the customer on the same day.
Through increased visibility and automation, you’ve effectively shortened the part of the cycle you can control the most — that is, from work order to billing. Now, the invoice is in the customer’s hands, pending timely payment.
The Bottom Line
Excessive service-to-cash cycles can put a squeeze on your cashflow and profits. But, with the right technology, you can accelerate that cycle and get paid quickly.
“Service-to-cash is a huge problem for service organizations that can be cured, literally, overnight,” Hart says.