Billing finance is a critical component of the financial operations for any company. It involves managing billing cycles, accounts receivable, and optimizing cash flow. Determining who owns and manages billing finance depends on the structure and needs of the organization.
Centralized Model
In many companies, billing finance is owned and managed centrally by the finance department. The CFO or finance director typically oversees the billing and collections team. Having a centralized billing function provides consistency across the organization. It also allows for centralized reporting and oversight of billing operations.
Centralized billing finance is common in companies with multiple business units or revenue streams. For example, a software company may have recurring SaaS subscriptions, services revenue, and license revenue. Managing billing for all three lines of business through a single finance team provides efficiencies and simplifies reconciling cash receipts.
However, there are some downsides to centralized billing finance. Business units may feel disconnected from customers and AR if they are not involved in billing. It can also create bottlenecks if all billing requests and issues have to go through the central team.
Advantages of Centralized Billing Finance
- Consistency in processes, reporting, metrics
- Oversight and control maintained by CFO
- Central repository for all AR data
- Streamlined operations and improved efficiency
Disadvantages of Centralized Billing Finance
- Disconnected from customers and business units
- Billing requests bottleneck through central team
- Inflexibility to meet specific business unit needs
- Lack of ownership at business unit level
Decentralized Model
In other organizations, billing finance is decentralized and managed within business units. Each business unit may have its own billing coordinator or specialist that handles invoicing, collections, reporting, and cash application.
This model allows each business unit to structure billing operations to meet their specific business needs. They stay connected to customers and can adapt processes quickly. IT can manage software subscription billing while services bills for consulting projects.
However, decentralization also has some drawbacks. There may be inconsistencies in processes between business units. Reporting rolls up from multiple sources instead of a unified system. Oversight is more difficult with decentralized billing ownership.
Advantages of Decentralized Billing Finance
- Billing tailored for specific business needs
- Closer connection between billing staff and customers
- Flexible and adaptable billing processes
- Business units empowered to make billing decisions
Disadvantages of Decentralized Billing Finance
- Inconsistent processes and reporting
- Lack of centralized oversight and control
- Inefficiencies from replicated functions
- Siloed billing data and systems
Hybrid Model
Some organizations use a hybrid model to balance the benefits of centralization and decentralization. For example, corporate billing policies and technology systems can be managed centrally. Business units handle billing execution like invoicing, collections, and customer inquiries for their products or services.
The hybrid approach provides coordination through shared policies, processes, and systems. But business units still have flexibility and ownership for billing operations. This helps overcome obstacles like billing bottlenecks or lack of customer insight with fully centralized models.
One challenge is aligning centralized standards with specific unit needs. Close collaboration between the central billing team and business units is essential.
Advantages of a Hybrid Billing Model
- Standard billing policies and processes
- Business units empowered to execute billing
- Shared central billing technology
- Centralized oversight combined with flexibility
Disadvantages of a Hybrid Billing Model
- Alignment and coordination between central and BU teams
- Potential inconsistencies in execution
- Communications and reporting must sync across levels
Key Factors in Determining Billing Ownership
There are several important factors organizations should consider when determining the optimal billing model:
- Multiple business units or revenue streams – Centralization helps coordinate diverse revenue sources
- Need for flexibility or customization – Decentralization allows billing tailored for business needs
- Size and structure of finance organization – Centralization fits large finance groups while decentralization empowers smaller teams
- Stage of growth – Early stage startups may decentralize then centralize billing as they scale
- Business and customer focus – Decentralization keeps business units closer to customers
- Need for oversight – Centralization provides consistency and control over billing
- Systems and processes – Central platforms enable centralization while decentralization allows custom systems
There is no one-size-fits-all approach to billing ownership. Companies should consider these factors along with their specific business context to determine the best model. The right approach provides the optimal balance of oversight, flexibility, and business partnership to maximize billing performance.
Billing Team Structure and Roles
Regardless of whether billing is centralized, decentralized, or a hybrid model, billing teams are typically structured with specific roles and responsibilities. Here is an overview of typical billing finance team roles:
Billing Manager
- Oversees billing team and operations
- Sets billing policies and procedures
- Resolves escalated billing issues
- Monitors metrics and KPIs
- Looks for process improvements
Billing Analysts
- Process invoices and send to customers
- Manage billing cycles and schedules
- Enter or validate new customer billing setups
- Research and resolve billing disputes
- Generate customer billing reports
Cash Applications Clerk
- Apply payments received to open invoices
- Research and resolve issues with unclear payments
- Process credit memos
- Generate aging reports
- Reconcile accounts receivable sub-ledger
Credit and Collections Specialist
- Make collection calls to past due customers
- Set up payment plans for overdue invoices
- Manage accounts escalated for collections
- Recommend credit limits and terms for high risk accounts
- Report on collection metrics and aging
Larger billing teams may also include a billing supervisor or lead, billing trainer, billing systems specialist, and billing analyst specialized by product, service, or customer type. Outsourcing billing roles like collections is also an option.
Billing Process Flow and Cycles
A typical billing process flow consists of these end-to-end stages:
- New customer set up in billing system
- Recurring invoices generated on schedule
- Invoices reviewed and sent to customers
- Payments received and applied to invoices
- Collections on past due invoices
- Billing inquiries and disputes resolved
- Revenue recognition and reporting
Billing cycles determine how often invoices are generated and sent to customers. Common billing cycles include:
- Monthly – Most common for recurring services or subscriptions
- Quarterly or annually – Used for some annual contracts or services
- Milestone or project based – One-off invoices after milestones or projects complete
- Upfront retainer – Bill full contract value when project starts
Billing cycles are usually aligned with accounting periods to facilitate revenue recognition and reporting. Custom billing schedules can also be set up for specific customers if needed.
Billing Team Metrics and KPIs
Billing teams track metrics and key performance indicators (KPIs) to monitor effectiveness and identify areas for improvement. Common billing metrics include:
Volume Metrics
- Number of invoices issued
- Number of customer bills
- Number of cash receipts or payments received
Efficiency Metrics
- Days sales outstanding (DSO)
- Time to resolve billing inquiries
- Billing cost per invoice
- Billing FTEs per $ revenue billed
Quality Metrics
- First pass cash application rate
- Billing error rates
- Number of billing disputes
- Dispute resolution rates
Benchmarking metrics can help identify improvement opportunities. Goals can also be established for metrics like lowering DSO or dispute rates.
Billing Reports
Regular billing reports provide insights into the health of accounts receivable (AR) and allow progress monitoring. Essential billing reports include:
Aging Reports
- Summary aging by period – 30, 60, 90 days
- Detailed aging by customer
- Monitoring trends with aging over time
Collections Reports
- Collections activity and status
- Delinquent accounts rollovers
- Payment plans
- Write-offs
Dunning Reports
- Notifications to customers of overdue invoices
- Levels of dunning notice – 1st, 2nd, final
- Impacts on customer payment response
Dispute Reports
- Volume of disputes
- Type and reason for disputes
- Time to resolve disputes
- Outcomes of dispute resolutions
Cash Application Reports
- Daily or weekly cash applied
- Methods of payment
- Unapplied cash and issues
- Credits processed
Automated reporting provides consistent visibility into billing performance. Billing reports should be distributed regularly to managers, executives, and business units.
Billing System Selection Criteria
Selecting the right billing system enables efficient invoicing, AR management, and revenue recognition. Some key criteria for billing system selection include:
- Flexibility – Ability to handle diverse billing needs and cycles
- Scalability – Growing transaction volumes with business expansion
- Integration – Touchless data flows with related systems like CRM and accounting
- Automation – Built-in workflows to streamline billing tasks
- Reporting – Customizable dashboards and billing analytics
- Cloud-based – Lower costs and maintenance of cloud platforms
- Customer portal – Self-service access to billing data and payments
- Mobile access – Billing capabilities from mobile devices
- Configurability – Ability to tailor system for business processes
- Ease of use – Intuitive system to enable user adoption
Choosing the right billing software is essential to support centralized, decentralized, or hybrid billing models. Aligning stakeholder needs with vendor capabilities helps select optimal technology.
Billing Process Improvements
There are a variety of ways organizations can optimize billing processes and AR management:
Automation – Automating manual tasks improves efficiency and reduces billing costs. Automation of invoicing, cash application, customer communications, and reporting are high impact areas.
Information sharing – Central repositories with customer billing data accessible company-wide improves collaboration between teams and resolution of issues.
Dispute management – Documenting dispute reasons, automation in addressing common disputes, and tracking resolutions helps continually improve and prevent recurring disputes.
Analytics – Identify trends from billing data to guide credit policies, collections practices, pricing, and other strategy.
Customer experience – Enable self-service access to billing information and make it easy to resolve issues and make payments improves customer satisfaction.
Training – Ensure billing team has knowledge of systems, policies, and soft skills for customer service to optimize performance.
Cross-training – Cross-training billing team members across different roles prevents bottlenecks when team members are out.
A data-driven approach while leveraging technology helps billing teams continuously enhance productivity, accuracy, and customer experience.
Billing as a Strategic Function
High performing billing teams evolve from tactical processors to strategic business partners by:
- Proactively engaging with multiple departments to ensure billing aligns with business needs
- Identifying root causes of issues and opportunities vs. temporary fixes
- Analyzing data to provide insights that influence pricing, sales strategy, and product development
- Advising on impacts of billing KPIs and trends to executive leadership
- Driving process improvements through automation, streamlining, and enhancing customer experience
- Influencing policies, tools, and organizational structures to optimize billing performance
With this elevated focus, billing transitions from order taking to a high-impact function that promotes company growth, profitability, and customer satisfaction.
Conclusion
Billing plays a crucial role in cash flow and revenue management for any company. Centralized, decentralized or hybrid models each have advantages that may align with specific organizational contexts and business objectives. Regardless of structure, high performing billing teams leverage automation, analytics, customer service, and continuous improvement to provide strategic value that goes well beyond basic invoice processing. Developing billing capabilities as a competitive advantage allows businesses to optimize financial performance.