The goal of quote-to-cash (Q2C) is to make your sales team’s process of transforming a customer’s quote into cash as efficient as possible. 

In this quote-to-cash guide, we’ll cover:

• What is quote-to-cash (Q2C)?
• The stages of the quote-to-cash process
• Identifying common challenges in the quote-to-cash process
• Resolving these challenges through automation
• How is quote-to-cash different from order-to-cash? 
• Optimize your quote-to-cash process flow with the right tools

What is quote-to-cash (Q2C)?

Quote-to-cash (Q2C) plays a critical role in business operations. It’s the process between a business’s initial customer quote and the actual cash collected. This process includes customer quotes, orders, and invoices, meticulously tracking sales from initiation to fulfillment. 

In the past, reliance on paper-based documentation and manual data entry led to inefficiencies and inaccuracies in Q2C. 

Without an optimized Q2C process, how will your business accurately determine owed amounts, anticipate payment receipts, and ensure prompt invoice settlements?

Key steps of the quote-to-cash process

The following steps explain the crucial workflow of the quote-to-cash process.

1. Offer configuration

This is the first step of the quote-to-cash process. Businesses use product configuration to offer customized solutions to their customers. This involves tailoring products and services by selecting desired combinations, features, and components.

Research shows that CPQ significantly reduces the time required for product configuration by 28%. Tools like CPQ allow sales reps to specify features and component combinations for complex configurations — for example, which features complement each other, can be combined, or bundled. It also makes accessory selection with components easier and less error-prone. 

2. Pricing 

When the desired offer configuration is finalized, the sales team then ensures they have the best, accurate, and error-free pricing for the offer as quickly as possible. This includes the necessary approvals on discounts or promotions and special offers. 

CPQ is helpful in ensuring that pricing is flexible and reflects the specific deal’s details, considering product features, discounts, and contractual agreements.

This pricing phase can be challenging, as the sales team needs to secure the optimal value in terms of price while also successfully closing the customer. Having a deal desk can also be helpful at this stage. 

3. Quoting

After configuring products, services, and pricing, the quote is created, which includes crucial details like pricing, delivery dates, and terms.

4. Contract management

This includes contract creation, negotiation, and extension. Usually, contract management happens when the customer is satisfied with the quotes and the proposal sent. The contract and agreement are formalized and set the framework for the transaction. 

CPQ software enables sales to streamline the deal approval process by eliminating delays and friction due to manual processes—it sends automated approval notifications to the necessary stakeholders, providing comprehensive deal details, and ensuring compliance and audit readiness.

5. Orders

Your company might manage orders in several different ways, such as through a CRM system integrated with CPQ, through direct sales representatives, online storefronts, self-service portals, third-party marketplaces, or partner networks. 

Each new order placement triggers a cascade of activities, spanning order tracking, billing, and payment collection.

6. Payment and collections

Is your system equipped to handle diverse global currencies seamlessly? Ensuring worldwide order fulfillment, from Texas to New Zealand, is imperative for business success. 

Managing currency conversion across regions is essential, as is staying compliant with tax regulations to uphold your brand’s reputation. 

7. Billing

Accurate billing can be challenging, particularly concerning cross-channel invoicing, data consolidation, and aggregating invoices for various offerings – be it physical goods, one-time charges, services, or subscriptions. It’s crucial to ensure accuracy while avoiding errors in financial transaction data.

8. Revenue recognition

With growth comes complexities in billing and invoicing, but also in recognizing revenue. Monetizing offerings requires adaptability and avoiding the pitfalls of outdated strategies that are laborious and costly.

9. Renewal

Depending on which team is in charge of your MRR expansion, your sales or customer success teams look for opportunities to upsell or cross-sell customers with the objective to improve the business customer lifetime value. 

The experience your customer gets throughout the order-to-cash process and how well orchestrated your upsell strategy is can play an important role in their decision to renew their contract.

Common quote-to-cash challenges

With so many moving parts in the Q2C process, challenges often arise, potentially impeding your sales team’s momentum. Addressing these challenges is vital not only for your finance and IT departments’ success, but also for sustaining the business agility needed to go to market with the right offers at the right time.

Some of the most common problems include:

Inaccurate data

Data entered incorrectly into your quote-to-cash system can lead to delays and errors, incurring financial losses. Manual errors are a big concern. If sales representatives enter data inaccurately, it can lead to the system generating inaccurate quotes.

Lack of visibility

If you can’t see what’s happening at each stage of the quote-to-cash process, then you’re unlikely to be able to identify and fix any issues that arise. This lack of visibility can also lead to customer frustration if they’re not updated on their quote or order status.

While visibility into quote-to-cash is crucial, visibility into your recognized data stream is equally vital and has dependencies on all of the upstream financial processes taking place. Live financial positions are critical in informing business decisions throughout a quarter and rely on real-time reporting and analytics from all of your financial systems. 

Manual processes

Quote-to-cash processes laden with manual tasks, such as data entry or manual invoice creation, tend to be error-prone and time-consuming. This hinders not only efficiency but also misses opportunities for upselling or cross-selling.

Complex pricing

Modern pricing strategies encompass a variety of offerings, from subscriptions to consumption-based models, hardware products, professional services, and bundled packages, which adds complexity. 

Effectively deploying and automating these pricing strategies, along with managing associated billing implications, is critical.

Lack of integration

Integration gaps within the quote-to-cash process result in inconsistent reporting, data duplication, and other inefficiencies. Seamless integration across your systems, from CRM to backend financial platforms, is essential for optimal outcomes.

Why is the quote-to-cash process crucial?

Recent years have posed numerous challenges, including a global pandemic exposing supply chain vulnerabilities and significant inflation trends. Amid this uncertainty, businesses have adapted to an environment that requires constant flexibility. 

Over the past two decades, a seismic shift has reshaped industries – transitioning from one-time transactions to relationship-driven business models, referred to as the Subscription Economy™.

Growth within the Subscription Economy thrives on cultivating customer relationships, prompting businesses to pivot their models as they nurture and monetize these ongoing connections. Yet, evolving market dynamics and shifting subscriber preferences require companies to act quickly to maintain relationships and foster business growth.

Businesses now offer diverse digital services, incorporating varied pricing structures, provisions, and usage tracking. Crafting service bundles across multiple channels, encompassing e-commerce, in-app, sales, partners, and marketplaces, helps to improve customer engagement.

Introducing new digital services, deploying various revenue models, diversifying pricing plans, expanding sales channels, accommodating diverse payment models, and accurately recognizing revenue across different methods contribute to growth, especially within the Software as a Service (SaaS) sector.

To stay aligned with evolving markets and dynamic customer preferences, businesses must reevaluate their conventional approach to managing the quote-to-cash process. Investing in a robust monetization platform that supports the complete quote-to-revenue lifecycle is imperative.

Related: How to retain subscribers in any economy 

Considerations for a monetization platform supporting quote-to-cash

Here’s what to prioritize when selecting a monetization platform that comprehensively supports the entire quote-to-cash process. You need a technology foundation that features automation tools that empower sales teams by streamlining labor-intensive tasks, enabling them to focus on core selling activities.

Introducing new revenue streams

The platform should effortlessly accommodate various pricing models, from subscription-based to consumption-based, one-time and recurring transactions. As businesses innovate to remain competitive, a flexible platform is crucial for pricing and packaging digital services, hardware, bundles, and promotions.

Related: How to accelerate iteration on pricing, bundles, and promotions

Agility and flexibility in market engagement

In today’s rapidly evolving market landscape, businesses must swiftly introduce new offerings, adjust pricing, and create promotional deals within hours, not months. 

Legacy systems and rigid integrations impede agility and hamper business responsiveness.

End-to-end monetization support

Quote-to-cash operations serve as the backbone for monetization strategies. A comprehensive platform should streamline processes spanning quoting, ordering, billing, payments, and revenue recognition, adapting seamlessly to changing demands.

Dynamic response to customer needs

Adapting to diverse customer preferences and behaviors is essential. Companies must orchestrate tailored experiences across various systems, including provisioning and communication platforms. 

Understanding the subscriber lifecycle and delivering a dynamic experience within the application ecosystem is critical.

Integration capabilities

Seamless integration with existing software applications is pivotal. Businesses should seek pre-built connectors and APIs that enable easy integration with various systems, such as general ledger, data warehouses, taxation systems, payment gateways, and more.

How is quote-to-cash different from order-to-cash? 

Quote-to-cash and order-to-cash (O2C) are closely related business processes, but they cover different sales cycle stages. They’re different in scope, initiation, and quoting inclusion.

While Q2C focuses on all the processes that turn a customer quote into cash, O2C involves everything that turns a customer’s order into cash. Think of O2C as the phase for order fulfillment and payment collection. 

In terms of processes involved, Q2C includes quoting, negotiation, contract or agreement creation, order placement, fulfillment, invoicing, and payment. O2C, on the other hand, involves order entry, order fulfillment, invoicing, accounts receivable, payment, and cash application.

Q2C includes the process of configuration, pricing, quoting (CPQ), and revenue management. O2C omits CPQ.

Another major difference between Q2C and O2C is the contract management lifecycle occurs within the Q2C phase. Everything from managing contracts, creating them, negotiating terms, and ensuring you get paid happens outside O2C. 

Optimize your quote-to-cash process with the right tools

The following tools play a strategic role in different stages of the Q2C process, ensuring a smooth and optimized workflow.

CPQ software

Arguably the most important software in the Q2C process, CPQ manages and automates configuration, pricing, and quotes.

Related:The evolution of CPQ software for modern business

Contract management lifecycle (CML) software

Another must-have software in the quote-to-cash process — it manages the entire contract lifecycle, from creation to renewal. CML software maintains detailed audit trails, documenting all changes made to contracts.

CRM 

You want to build and maintain a lasting relationship with your customers. CRM serves as the central repository for customer-related information and tracking sales activities. Integrate CRM in your Q2C process and get a 360 view of customer history. It facilitates seamless communication between sales, marketing, and customer success teams.

ERP

Whether you work in finance or supply chain, as long as monitoring your business operation is important, you need ERP. Ensuring your customers’ accurate customer orders, inventory management and financial tracking is critical.

Revenue recognition software

Revenue recognition software is essential to ensure financial accuracy and compliance with accounting standards and regulations such as ASC 606 and IFRS. This software provides automation, precision, and efficiency to the revenue recognition process within your Q2C workflow.

Pricing software

Pricing software contributes to optimizing the pricing strategy in the Q2C process. It helps set competitive and profitable prices, automates pricing calculations, and ensures consistency in pricing across different transactions.

See how your business can improve quotes, speed up order processing, make it easier for customers to pay their invoices, and even identify opportunities to sell additional services. Discover how Zuora’s centralized platform can help automate not only your quote-to-cash process but all your subscription order-to-revenue operations.