Many small-to-medium sized companies crave the big sales contract that would transform their financial fortunes and validate their business models. But there are many reasons why such pacts often prove less than transformative.
In some cases, the issue is operational – a single client becomes the largest source of revenue and diverts attention from other projects, for example. The financial implications should not be ignored though.
Sales teams are understandably quick to celebrate a win. But they are less inclined to worry about the finer details, such as whether the billing details are correct or the payment terms are favourable. And they’re much less focused on the more mundane aspects of the deal, such as ensuring that invoices are issued promptly and payments are made on time.
This raises the question of whether finance teams should have upside tied to revenue quality – for example, in terms of the percentage of payments collected on time, or avoidance of bed debt.
Realising the value of revenue
The argument here is that many revenue issues are not apparent at the time a deal is finalised. Instead, they can emerge weeks or even months later when the finance team begins to address collections, exceptions, margin impact and other factors that may not have been immediately clear.
“As someone working in finance, I could not agree more with the suggestion that finance should get rewarded for revenue,” says Syeda Nida Muzaffar, head of finance at Saudi Arabian date producer Siafa Dates.
“Revenue may start with a signed contract, but its true value is realised only when it is accurately billed, collected and translated into sustainable margins and cash flow.”
Finance often works behind the scenes to ensure that the numbers the business celebrates today remain reliable tomorrow, she adds. “Rewarding revenue quality – not just revenue quantity – is a perspective more organisations should consider.”
Invisible contribution
Finance doesn’t just help turn bookings into revenue. Increasingly, it helps determine which products, pricing decisions and investments get made before revenue exists at all.
That is the view of Shakil Ahmad, senior financial analyst at Los Angeles-based web hosting provider and domain name registrar DreamHost. He notes that on a recent product launch, a large part of the finance work happened long before the first dollar of revenue: building the business case, modelling scenarios, forecasting outcomes and defining the KPIs that would determine whether the launch was actually successful.
“Finance may not close the deal, but it often helps answer whether the deal, product or investment is worth pursuing in the first place,” he says. “The contribution is often invisible because the best finance work happens before launch day, not after.”
The most successful organisations do not focus only on measuring bookings; they also monitor the speed at which those bookings turn into cash and profit. They recognise that a signed contract signifies progress, whereas a collected payment represents a successful outcome.
