Studies have revealed that a considerable amount of revenue is lost this way through leakages and some of the figures are really astounding. While telecommunications and utility companies lose up to 5 per cent, the hotel industry and financial services lose about 2 per cent, health-care and internet service providers lose between 5 to 10 percent, but wireless phone companies take the cake by losing between 5 to 15 per cent.
So, how do you plug these leaks? You will have to do it very systematically just like an auditor. Go through the process of each department very minutely and very soon you will be able to identify the leaks. Leakages normally occur at places where departments change hands. And, that is where technology can come in to help – you can switch-over to automated systems, as automated billing systems are less prone to make mistakes.
Revenue leakage represents the profit companies actually lose from their transactions. Transaction price management doesn’t receive attention and is taken very lightly in many organizations as it pertains to the lowest level of detail for profitability management. If you could do an effective price management it can stop revenue and margin leaks and lead to substantial improvement in the revenue. This is more so during an economic downturn, given the complex nature of decision making and the pressures associated with it.
Revenue leakage can take place almost anywhere in the system – from internal functions to customer-based transactions.
Prominent areas that are prone to leakages could be:
- Regular discounts
- Unapproved discounts
- discretionary discounts
- distributor discounts
- end-customer discounts
- preferred customer discounts
- cash discounts
- Promotions and rebates
- Errors in billing and invoicing
- Other costs
Effective plugging of revenue leaks rests on business policy, detection and resolution, and continued process improvement initiatives by the organisation. Keeping in view ISO, Six Sigma and other business quality improvement methods, the business can drive continual business process improvements. It would just not be enough to simply detect and resolve problems. It is just as important to identify, analyse and eliminate its root cause.
It is observed that a number of businesses keep losing a considerable portion of their revenues due to leaks or undetected errors in the system. Studies reveal that businesses keep losing revenue for a number of reasons – it could be because of a salesperson’s carelessness to send the correct invoice, misquotation of prices, not charging for the correct quantity, or for some such reason. Experts suggest that entrepreneurs would be losing out between 2 to 20 per cent of their revenues to such leakages.
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