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software solution, consideration is given
to the opportunities to recover the cost of the system and the timeframes
involved. Although some of these factors are difficult to precisely
quantify, in working with dozens of clients over the last few years
we have seen a number of areas in which savings or additions to
revenue can be realized. Some of these may be germane to your business.
One direct result of the implementing the Advantage
System is an appreciation in revenue as a result of corrections
made to billing practices, which over time, have failed to fully
charge for services rendered. This has often generated additional
revenues in the range of 3% to 7% per year. The reasons for undercharging
can be varied, but some of the most common are:
- adjustments to minimums which are difficult
to track
- omitted charges for services rendered
- inability to default to “standard”
pricing for services rendered that are outside of the range
of services originally contracted for
- automatic adjustments
to rates which have not been applied over time
- changes to billing schedules which are contractually
authorized, but which are difficult to attribute to participating
accounts
- accounts put on hold and not subsequently
reset for billing
- expired agreements which can default to standard
pricing schedules, or which can be renegotiated.
It might be said that the appreciation is
somewhat unrelated to the use of Advantage, and that any audit would
have the same results, but this objection misses the mark. Although
this type of appreciation is to some extent based on discovering
errors of omission and is an offshoot of the installation of this
software, the recovery of lost revenue is only part of the story.
By moving to a more formal setup process, as required by Advantage,
you also avoid the repetition of this type of error over time. Further,
it is the setting up of the fee structures and the verification
of the setup that generally reveals the omissions. Thus an audit
would miss many of the recoveries which are just part of the “fallout”
of the implementation and would likely be more expensive to conduct
on a manual basis than the “audit” which is the byproduct
of the automation.
There are several aspects of Advantage
implementation which leverage reports that provide revenue opportunities:
- Accounts Not Billed – This report identifies
accounts that have not been billed, or have not been billed
on a timely manner, as well as identifying billing gaps, which
can represent real lost revenue. W e recommend that these reports
be run on a regular basis to provide and operational completeness
audit.
- Accounts Due for Review – This identifies
accounts whose fee arrangements are up for review. This is useful
in pre-notifying account officers of the expiration of existing
arrangements in advance of the expiration date which allow them
to renegotiate the prices, as appropriate, on accounts that
are due for increases.
- Account-by-Account Revenue – The Revenue
reports will indicate what revenue has been generated for an
account or group of accounts over a specified period. These
revenue reports can be useful to the account officers in renegotiating
fees for low yield accounts.
The availability of these reports on a selective
basis can also eliminate the requirement of the Fee Unit to gather
this information on demand form records which may be difficult to
access. These time savings result in cost savings for your institution.
Equally important, a wide variety of operational and management
reports provide a "single point" for the analysis of the
business.
One area of revenue generation is a by-product
of the cash flow improvement that can result from a more efficient
fully automated implementation. The reasoning is fairly straightforward.
If you were generating $ 500,000 in bills that can be produced
and released one month earlier following the implementation of
Advantage, due to a fully automated solution, then the income
earned by the investment of those funds represent the yearly increase
of revenue (the hypothesis being that every month you bill the
income is available 1 month earlier). You will need to work with
your own estimates to quantify this revenue, but it is a recurring
benefit.
There are several areas in which you can expect
operational saving once the system is implemented. The ones that
are most common are:
- Elimination of manual billing – The
effort which goes into the production of manual bills is eliminated
in favor of a one time setup. Generally these savings offset
the cost of setup in a few months of operation.
- On-Line Review of Invoices for Authorization
– When the system is installed, invoices which need to
be printed for review can be replaced by on-line images which
reduce “paper costs”, including the operational
processes and handling expenses which are part of a paper-based
review process such as paper, envelopes, handling, mailing and
courier services.
- Threshold Pre-Authorizations – Another
area of significant savings, this derives from the ability to
establish variation thresholds to allow invoices which are "similar"
to prior period invoices (e.g., ± x% or ± amount)
to be preauthorized, bypassing the need for the review process.
This threshold parameter is set at the account level and can
result in significant time savings. One client reduced the review
process by over 80%.
- On-Line Review of Invoices for Account Reviews
– Since account officers have access to the invoice information
on-line they can review that material without contacting the
Fee Unit for fee history information prior to a client meeting.
- Consolidations of several billing units into
one – This has resulted in significant FTE savings for
many clients. In some instances the significance of this has
been realized in several phases as different special manual
billing functions are added to the Advantage System under a
single operational control. We have seen geographic and cross-product
consolidations. Some of these consolidations occur on a global
or national basis.
- Reversal and Adjustments – This is
another area where existing systems are often difficult to work
with. There can be FTE savings simply because of the immediacy
with which Advantage deals with reversals and reruns of individual
invoices.
- Accrual Calculations – In some areas the
computation of monthly revenue accruals is a difficult and time
consuming job. The inherent facilities of the Advantage Fee system
in the accruals can significantly reduce the time spent in generating
monthly revenue accruals and in reconciling those accruals to
fees that are ultimately billed. The revenue recognition facility
for fees billed in advance often provides an improvement in the
accuracy of the accrual and the integrity of the revenue reporting
from a GAAP perspective.
To summarize, there are many obvious and some less obvious revenue
benefits to billing through Advantage. Overbilling, underbilling
(and in the case of some accounts, not billing at all) are eliminated.
The ability to consolidate all your billing and reporting on one
system is a great gain in efficiency. The benefits of improved
cash flow and operational efficiency are sometimes overlooked,
but significantly impact revenues, and comprehensive reporting
is clearly a tool with many long-term benefits.
The following article appeared in Global Investment Management,
2003: Revenue management in the age of the negotiated fee
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