Quote-to-cash explained

Quote-to-cash is the process from quote to paid invoice: drawing up a quote with the right products, prices and discounts, getting it approved, turning it into a signed order or contract, delivering, invoicing and collecting. Its centre of gravity is the commercial side: what price was offered, what discount was given, and does that price reach the invoice intact? In many B2B companies most revenue is lost in the first step, not the last.

Where does quote-to-cash start and end?

Quote-to-cash starts the moment a salesperson creates a quote and ends when the invoice is paid. That means it overlaps with other chains. Order-to-cash starts later, at the order, and is mainly about delivery and collection. Contract-to-cash is about managing running contracts in the years after signature. Quote-to-cash puts the emphasis on what happens before that: the price, the configuration and the approval.

That emphasis is justified. A wrong price on the quote is a wrong price on the order, in the contract and on every invoice after it. An error at this stage multiplies.

What are the steps of quote-to-cash?

1. Configure

Which products or services, in which combination, in what quantity? With simple products this is a choice from a list. With complex products or projects the salesperson has to know the rules: this component goes with that component, this service requires that installation, this package from so many users upwards. Errors here are components that are forgotten and later delivered free, because the customer assumed they were included.

2. Price

The price comes from a price list, a customer-specific agreement or a calculation. There is a big risk here: outdated price lists. A price increase that applies from 1 January while the old price list is still in the quote template. A salesperson who copies and adapts an old quote. A customer-specific price that was meant for one project and then comes back on every quote.

3. Discount and approval

The salesperson gives a discount, within or beyond their authority. Ideally there is a rule: up to a certain percentage the salesperson may decide, above that a manager has to approve. In practice discounts are often given to land a deal at the end of the quarter, and the approval is recorded after the fact or not at all. A discount meant for the first year sits in the system with no end date and runs on forever. More on this in revenue leakage from wrong prices.

4. Quote and signature

The quote goes to the customer, is negotiated and signed. Negotiation changes the content: an extra discount, a different payment term, a free component. If the signed version is not the same as the latest version in the system, the rest of the chain starts with the wrong data.

5. Order or contract

The signed quote becomes an order in the ERP or a contract in contract administration. This is the handover from sales to administration. If the order is retyped by hand, typing errors and omissions arise. If it is taken over automatically from the CRM, errors from the CRM are carried along unnoticed.

6. Delivery, invoicing and collection

From here it overlaps with order-to-cash: delivering, invoicing what was delivered at the price in the order, and collecting.

Where does quote-to-cash leak?

The pattern is always the same: information changes along the way, and the next step does not know. The more systems and people sit between quote and invoice, the more moments at which that happens.

Extra work and changes after the quote

A quote is a snapshot. With projects and custom work, the assignment changes after signature: the customer wants an extra component, a different specification or more hours. That is extra work, and it should go through its own small quote-to-cash chain: record what is extra, at what price, with the customer's agreement, and make sure it lands on the invoice.

In practice, extra work is often agreed verbally, on site or in an email between project manager and customer. There is no quote, no order and therefore nothing invoicing can see. The work is done and the costs are incurred, but the revenue gets stuck. A simple rule helps: no extra work without written confirmation with a price, and every confirmation becomes an order line. Check periodically whether hours booked on a project exceed the quoted budget without a variation order against them.

What does a CPQ system solve, and what not?

CPQ stands for configure, price, quote: software that supports the first four steps. A CPQ system enforces configuration rules, takes prices from a central price list and requires approval for discounts above a threshold. That prevents many errors at the front end.

What a CPQ system does not do: check whether what is on the quote also ends up on the invoice that way, months later, after a change, a migration or a manual correction. It protects the start of the chain, not the end. The difference with a system that guards the whole chain is set out in Revenue Intelligence vs CPQ.

For many companies with EUR 2 to 20 million in revenue, a full CPQ system is also more than they need. An up-to-date price list in the CRM, a fixed discount rule and a check afterwards often deliver a large part of the result.

How do you check quote-to-cash?

1. Compare quotes with the current price list. How many quotes in the past six months were issued at a price lower than list price with no recorded discount? Those are outdated prices or silent discounts.
2. Compare discounts given with authority. Which discounts were above the threshold, and is there a recorded approval for each?
3. Check discount end dates. Which temporary discounts are still running after their intended end?
4. Compare signed quote with order. Per deal: does the price per line in the order match the signed quote?
5. Compare order with invoice. Per order line: has everything been invoiced, at the agreed price?
6. Look at the spread. What do different customers pay for the same product? A wide spread without explanation points to discounts nobody is watching.

The last check is often the most revealing. A director who sees the same product being sold at five different prices will ask the right questions without prompting.

Worked example

Worked example: suppose a supplier of business equipment with EUR 6 million in revenue introduces a 4 percent price increase on 1 January. The quote template in the CRM is only updated on 1 April. In the first quarter, EUR 1.2 million in quotes is signed at the old price.

At the new price that would have been EUR 1,248,000. The difference is EUR 48,000. Because some of these customers have annual contracts, the difference carries on in every invoice on those contracts. A check that set quote prices against the current price list would have spotted this in the first week of January.

Checklist

• Is there one current price list, and does everyone know which one it is?
• Are quote templates updated on the same day as the price list?
• Is it recorded which discount a salesperson may give on their own authority?
• Does every temporary discount have an end date in the system?
• Is the signed quote stored in the system, not just the latest draft?
• Is the order filled automatically from the signed quote, or retyped?
• Does someone periodically compare order prices with invoice prices?

Quote-to-cash is one of the chains that come together in a single source of truth for revenue.

Frequently asked questions

What is the difference between quote-to-cash and order-to-cash?

Quote-to-cash starts at the quote and includes configuration, price and discount. Order-to-cash starts at the order and is mainly about delivery, invoicing and collection. So quote-to-cash is broader at the front end.

Do I need a CPQ system?

Only if your products are complex to configure or your pricing structure has many variables. For many B2B companies a good price list in the CRM with a discount rule is enough, provided you check afterwards what is actually invoiced.

Who owns quote-to-cash?

It starts with sales and ends with finance. Record who manages the price list, who approves discounts and who checks that the agreed price reaches the invoice. Without those three roles, the process belongs to nobody.

How often should I check prices on quotes?

Immediately after every price change, and in addition every quarter a sample or full comparison of quote prices with list prices.