1. THE MOST COMMON PITFALLS IN
QUOTE-TO-CASH BUSINESS PROCESSES
and How to Avoid Them
for Life Science Organizations
2. The Three Phases of the
Quote-to-Cash Process
Organizations can drastically improve the efficiency
and compliance of their revenue management
operations by defining their E2E business processes
throughout all three phases of the Q2C process.
The three phases of the Quote-to-Cash process are
as follows:
1. Quote/Contract Phase
This phase typically involves the sales or account
team, in coordination with processes conducted by
Contracting, Sales, Marketing and Administrative
teams including pricing analysis, creation of the
customer contract, review and negotiation of the
contract and implementation of the contract. The
quote/contract phase also includes any pre-deal
analytics performed.
2. Revenue Recognition Phase
Once the quote has been accepted and the
contract has been negotiated and implemented,
then the revenue recognition phase, also known
as Gross-to-Net (GTN), should commence. This
phase spans from the time a product is sold
and shipped through net sales realization of that
product. It is typically centered on an organization’s
operations and financial activities, such as payment
processing and financial postings. System and
data architecture are typically instrumental in this
phase. From the moment a customer payment is
processed through the post-deal analytics and
financial statement reconciliation and analysis,
these architectures are the foundation for review,
assessment and future decision-making.
3. Cash Phase
Although there may still be some post-deal
analytics bleeding into this phase, the cash phase
is primarily dedicated to business processes such
as customer deduction managements, accounts
receivable processing and aging analysis, cash
posting, cash forecasting inputs and corporate
Days Sales Outstanding (DSO) calculations.
End-to-end business processes should be defined
to help break down the silos of cross-functional
organizations, build test cases for system
architecture changes and system implementations
within the organization, and achieve better business
outcomes by ensuring that stakeholders are
invested in the organization’s complete business
processes. Defining E2E business processes
throughout each Q2C phase ultimately provides
the benefits of advanced controls, spotless
documentation, streamlined workflows, superior
auditing capabilities and systematic compliance.
By mapping out the details of each phase in the
Q2C process, your organization can achieve
successful cross-functionality, enabling a more
efficient and compliant revenue management
operation. Ultimately, defining and mapping
business processes will result in better business
outcomes and more invested stakeholders.
Introduction
With proper review and assessment, Quote-to-
Cash (Q2C) business processes—from the analysis
and creation of quotes for potential customers to
the receipt of payment and posting of cash and
customer deductions—can be designed to achieve
optimization and end-to-end (E2E) integration
with revenue management business operations.
By defining your E2E business processes and
planning the phases of your Q2C process using
simple business process mapping strategies, your
enterprise can break down the silos that keep
many cross-functional organizations from being as
efficient, productive and compliant as possible. But
first, it is important to understand the most frequent
barriers to optimization, and how to avoid them.
When considering E2E business processes that
are as complex and cross-functional as Q2C
processes, it is very easy to fall prey to the most
common Q2C pitfalls. There are also many common
misconceptions about the Q2C process that
block understanding and keep organizations from
achieving the goals of optimization, integration,
efficiency and compliance. Your organization can
avoid these pitfalls and misconceptions
by more diligently standardizing the upstream,
integrated processes that feed into the calculation
of Gross-to-Net liability—including workflows,
documentation,
internal controls and other integral processes—
through a collaborative Q2C process approach.
The following whitepaper will explain the phases
of the Q2C process, misconceptions surrounding
the process, the most common pitfalls that are
experienced in this process and, most importantly,
how to avoid them.
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And, last but not least, it is
simply not the case that the
GTN forecast must consist of
heavy estimates weighed down
with even heavier assumptions.
This misconception prevents
organizations from achieving
an optimally performing Q2C-
backed forecast with more
accurate, timely and secured
inputs, which would change
many of those estimated
variables to fixed values.
Charge Back Process - Price Change/ Customer Contract Ammendment
Quote/Contract Phase
Accounting
(A/R,A/P)
GTNFinance
Sales&
Marketing
Contracting
Sales/AccountsCustomer
Revenue Recognition Phase Cash Phase
Profitability,
forecast and reserve
adjustments
analyzed
Pricing/Offer
Analysis completed
and sent to Finance
for review
Acknowledgement
of price load
received,
documented,
filed
Account manager
receives request and
sends to Contracting
Customer sends
RFP/price request
Approval of
new pricing
Adjustments made
to reserve accounts,
forecast, if
necessary
New indirect pricing
loaded into
chargeback
system
845 EDI
information
received by
wholesaler, if
applicable
Customer
receives RFP
response,
accepts/declines
RFP response
reviewed, sent to
Customer by
deadline
RFP response
completed
New accrual rates
calculated and
entered into
system
Customer receives
849 charge back
reconciliation and
crdit from
manufacturer
Customer insights
received, inventory
analysis
Actuals,
contract-level
data analyzed,
direct vs. indirect
channel sales
Actuals vs Accruals
analyzed
(timing varies)
Coordination with
Finance and Sales
on results
Monthly/Quarterly
Reserve Analysis
Balance sheet
Validation
Customer sends
844 charge back
request to
manufacturer
Request for inventory,
buying pattern
information
responded to
Customer takes
deduction for
charge back
discrepancy
844 received
and charge back
validated, processed
for payment
Customer credit
memo created,
accruals posted to
GL and customer
account
Customer payment
received less
deductions, cleared
with credits
Deduction
discrepancies
realized, posted to
specific account
Disputed deductions
analyzed, potential
reserve
methodology
considered
Re-processing of
charge back, if
required
Figure 1 Figure 1 is an example of an End-to-end, Quote-to-cash Business Process mapped out in relation to the three
phases: Quote or Contract, Revenue Recognition, and Cash.
Misconceptions about the
Phases of Q2C
Some of the most frequent misconceptions
about Q2C are:
a) it should be approached process-by
process versus looking holistically at end-to
end processes;
b) the majority of risk and other issues exist
within the Revenue Recognition phase;
c) the most important tasks lie within the
Finance Organization;
d) optimization is the same thing as automation;
and
e) the GTN forecast, based on Q2C actuals, must
rely heavily on assumptions or estimates.
The misconception that Q2C should be approached
process-by-process, or silo-by-silo, tends to lead
organizations into over-segmentation of what
is already a segmented process. This can be
dangerous if the organization misses a process or
doesn’t make the necessary connections to achieve
successful optimization and integration down the
line. Equally dangerous is to assume that risks are
limited to the Revenue Recognition or GTN phase,
and that the Finance or GTN team is responsible
for the most important tasks during any phase of
the process. It is also true that issues are often
detected during the GTN phase, but this doesn’t
necessarily mean that the GTN phase, or any
particular process during that phase, was where the
problems developed. More likely is that the issues
detected during this phase developed during one
of the upstream, quote or contract processes. The
misconception that automation alone is enough to
successfully optimize these business processes is
perhaps the most common, with sales managers,
business partners, vendors and many other
stakeholders falling prey. And, last but not least, it
is simply not the case that the GTN forecast must
consist of heavy estimates weighed down with
even heavier assumptions. This misconception
prevents organizations from achieving an optimally
performing Q2C-backed forecast with more
accurate, timely and secured inputs, which would
change many of those estimated variables to fixed
values.
Quote/Contract Phase Pitfalls
The 10 Most Common Pitfalls in Quote-to-
Cash, and How to Avoid Them
Misconceptions can lead to a number of negative
consequences during each phase of the Q2C
process, but the good news is that it’s possible
to avoid the most common pitfalls during each
Quote-to-Cash phase by simply being aware of
what they are and how they can be detrimental to
your Revenue Management goals. By implementing
and maintaining Industry Best Practices that
encompass Audit Preparedness, Business Process
Management, Documentation and Control, General
Ledger Account Strategy, Reporting, Analytics and
Dashboards and System and Data Architecture,
while maintaining the model of a Cross-Functional
Organization, it is possible to take some steps to
avoid the most common pitfalls of Q2C.
1. Not taking the full customer/product P&L
statement into consideration at the time of
review. This financially painful pitfall makes
it easier to miss new or existing discounts and
incentives. This leads to price quotes that
are too low to maintain profitability and reactive
financial actions in regards to accruals, reserve
balances, etc.
2. Failing to perform thorough contract reviews,
and allowing the paper copy of a contract or
amendment to move forward after only
one person or department reviews it. A lack of
diversified and comprehensive reviewing
makes it much easier for a number of
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dangerous errors to slip through the
cracks, such as missing contract terms,
discounts and incentives; inaccurately
considering and adjusting accruals and/or
forecasts; and inadvertently allowing
discrepancies to occur once the actuals
are received.
3. Failing to consider, review or cross-functionally
communicate all necessary contract-level
customer behavior and sales channel data.
This pitfall may lead to excessively low price
quotes, eroded profit margins at the time of
pricing analyses, varied payments from
accruals, lack of open communication
with customers and new or “contract breaking”
buying patterns that reduce profit margins
without self correcting consumer behavior
or adjustments.
4. Omitting the calculation and analysis of any
immediate effects to reserve balances. This
can be a major detriment to any life science
organization’s financial house; by doing this,
the organization will once again find itself
making reactive financial actions (as opposed
to proactive actions) in regards to accruals,
reserve balances, etc.
5. Neglecting to separate duties in system loads
or contract maintenance when preparing and
calculating pricing, system errors, reviews and
approvals during the quote/contract phase.
The result? Business process auditing failures,
more room for human error and general lack of
communication from one process to the next.
6. Not providing accurate or sufficiently detailed
pricing changes in representations or requests.
This can lead to errors in system changes,
inefficient processing and time-consuming
readjustments. The inaccurate representation
and documentation of effective dates and
change-dates throughout this process also
lends a heavy hand to some of these negative,
and sometimes costly, outcomes.
How to Avoid Quote/Contract
Phase-Related Pitfalls:
• Implement a standard workflow with forms for
pricing analysis processes
• Perform cross-functional review and
communication of amendments
• Utilize channel data in profitability analysis
• Add a required, initial adjustment analysis based
on customer inventory data
• Show changes clearly in accrual change forms
• Employ clear separation of duties within cross
functional organization
• Include a cross-training plan
• Place a heavy emphasis on forms and approvals
Revenue Recognition Phase Pitfalls
7. Maintaining existing data, reporting architecture
and organizational structure that does not allow
for analysis on actuals data as opposed to
accrued data. As organizations move into the
Revenue Recognition or GTN phase, this pitfall
may lead to adjustments being made without
proper reasoning or backup, in addition to a
slew of other negative consequences.These may
include inaccurate and untimely analyses,
system limitations, slow or nonexistent
reconciliation and validation processes and
a general sense of reactiveness rather than
being proactive and, ultimately, productive.
8. Failure to receive, report on and/or analyze
customer inventory as part of the results review.
Because of this, adjustments are inevitably
made that are riddled with errors.
How to Avoid These Revenue Recognition
Phase Pitfalls:
• Implement an automated system(s) for
operational processing, reporting and/or analytics
• Review General Ledger account structure and
determination for both Actuals and Accruals
• Implement a standard workflow with forms
for adjustments
• Implement use of the Customer Channel
Inventory data and/or system
• Pull in data to reserve reconciliations
• Increase cross-functional collaboration with
monthly & quarterly review meetings
• Educate and increase awareness as well
as participation
• Cross-functionally communicate monthly results
Cash Phase Pitfalls
9. Posting cash and deductions to customer
accounts without sufficient detail. As
organizations move into the cash phase of
Q2C, this pitfall makes it nearly impossible to
clear, analyze or report on those transactions.
10. Failing to consider any disputed deductions
reserve methodology. Because of this,
organizations may potentially find themselves
exposed to unforeseen customer deductions on
reserve accounts.
How to Avoid These Cash Phase Pitfalls:
• Put into practice a standard workflow for cash
posting and customer deduction handling
• Implement a disputed deductions
reserve methodology
