Back to Billing Basics: Revenue Leakage

When we talk about billing automation, we often refer to the goal of minimizing revenue leakage. While minimizing leakage of any kind sounds like a worthwhile goal, let’s take a step back and look at exactly what we’re talking about.

What Is Revenue Leakage?

Revenue leakage is exactly what it sounds like: the slow, unintended, and often unnoticed loss of money from within a business. This isn’t loss from general planned or unplanned business expenses; rather, it refers to the inadvertent loss due to small errors or gaps in billing processes that result in underpayments at the end of a transaction with a customer.

How much does revenue leakage impact businesses? MGI reports that 42 percent of companies experience revenue leakage, and EY suggests that “Every company — regardless of size or sector — should assume a potential leak of 1 to 5 percent realized EBITDA.” To give a little context: for an 100 million-dollar company, that’s a loss of 5 million dollars per year and for a billion-dollar company, 50 million dollars per year.

The Causes of Revenue Leakage

Revenue leakage can stem from a variety of causes. It could come from not being able to bill for all your offerings, unintentional suspensions of accounts following declined payments, from accidental overapplication of discounts or duplication of free trial periods, from charging expired credit cards, from flawed mediation of usage data, from countless errors in manual tracking of recurring billing…you see the point. There are a lot of potential causes for revenue leakage, but they all come down to one thing:

The business’ billing platform isn’t up to the task.

As business models get more complicated — combining one-off purchases with simple subscriptions and consumption-based add-ons — and the volume of customers increases, the process of tracking, billing, and collecting payment for customer purchases becomes more and more arduous. A legacy system that handled billing seamlessly when the company was smaller will buckle under the growing demand. Maybe it doesn’t integrate well with the other platforms that drive the business, or maybe it wasn’t really built for the business models that are now in play. And any manual, spreadsheet-based processes will lead to delays, wasted time, and significant human error — no matter how talented the finance team members may be. As a result, the business will start to see (or, more likely, miss) errors that lead to revenue leakage. And it will only get worse the longer they limp along with the outdated system.

How to Stop the Leaks

The good news is, despite how common it is among businesses of all sizes and industries, revenue leakage is not inevitable. Rather, by implementing an agile billing solution designed to handle complex models, high volumes, and constant change with ease, businesses can rest assured they’re no longer leaving money on the table. Here are just a few ways the right billing platform can make revenue leakage a thing of the past:

• Automated Billing Processes: By taking the human intervention out of the equation, an agile billing platform can minimize the risk of errors in even the most complex pieces of the quote-to-cash process.
• Powerful Mediation: Because usage-based billing involves so many sources and varieties of data, it’s critical to be able to normalize and convert all that data to accurate, easy-to-read invoices in order to ensure you’re billing for everything customers have consumed. A powerful mediation engine makes the job a snap.
• Integration with Other Systems: The billing platform is just one of many components of the network of systems that makes the business run smoothly. If it doesn’t play well with the other platforms, such as the CRM and the ERP, that store and process information on products, services, and customers, that creates gaps for revenue to leak through. Look for a platform that integrates seamlessly with other tech for a leakproof system.
• Flexibility & Ease of Configuration: Agile billing systems also eliminate the handholding (and often the need for third-party experts) required to update billing models, pricing, product catalogs, invoice processes, or anything else. This means they’re equipped to support ongoing change to business models and prevent missed revenue in the process.
• Heightened Transparency: Finally, one of the biggest culprits of revenue leakage is the inability for key players to see what’s happening behind the scenes of the billing processes. Without transparency, bugs that could have been easily caught and fixed snowball into the kind of errors that lead to revenue leakage — not to mention frustrated customers. But the right agile billing platform provides near-real-time reporting, ensuring finance team members have the insight they need to ensure everything’s running smoothly at any given moment.

With the right billing system in place, growing businesses can minimize the time and resources they spend wrangling complex transactions and high usage volumes. By automating key processes with a system that integrates smoothly with other company technology platforms and encourages — rather than impedes — change, they can grow their revenue exponentially, and minimize leakage in the process. To learn how Gotransverse helps our clients accomplish these goals, we invite you to take a virtual tour of our platform today. Then, when you’re ready, request a demo to talk with one of our experts about whether Gotransverse is the right billing platform for your organization.