What Are the Five Stages of the Revenue Cycle?
The revenue cycle represents a set of activities companies go through to exchange goods or services for cash. By looking at the stages of its revenue cycle, a business can see how well it's making money and make changes to any stage accordingly. Depending on the type of business, the lengths and the description of the cycle stages may vary slightly.
The revenue cycle starts when a company prepares to sell a product or service to a customer. This stage involves creating a proposal, a presentation or a sale pitch for a potential customer. The proposal process may include a disclosure of the terms and conditions of sale, incentives and warranties. A proposal may need to be approved by a department manager.
When a company presents a proposal for goods or services, a client may want to make changes to it before accepting it. The sales associate will need to document all changes before both parties sign the modified contract. Once the contract is signed, the terms may not be changed, unless both parties allow them.
A company delivers goods and services to a client during this stage. Any delays during this the delivering stage affect the following stages. Verifying information on the contract and the order is essential to avoiding costly mistakes. If a client request a change during the implementation stage, a new contract may need to be signed to reflect the changes. A manager may need to approve the order changes.
This stages may be short or long, depending on how a company operates. Some companies receive a payment at the time of sale or when a service has been completed. Other companies operate on credit and do not receive a payment until the goods are received the buyer and services accepted. A company may need to send a bill to a client to receive a payment. If a client has already authorized, it may need to bill his credit card or bank account during this stage.
During the last stage of the revenue cycle, a company attempts to collect the outstanding invoices. If a client does not pay within 30 days after receiving a bill, the company's accounts receivable prepare a report showing where the uncollected funds are. While some companies allow unpaid debts to be charged off, other companies pursue other collection attempts. By analyzing the revenue process at this stage, a company can modify other stages of the revenue cycle to collect money more efficiently.