A Journey to Quote-To-Cash

6 min readJun 9, 2019

For the past two years I have been looking into what is now popularly called as “quote-to-cash” or Q2C. In this article I will briefly discuss my point of view on Q2C as it applies to IT (Information Technology) Services.

Overview

Q2C is an end-to-end business process that connects front-end customers who buy your products or services to back end resources that provide those products or services to realize revenue for a company. Q2C is a complex business process with many sub-processes that cuts across many lines of business and across multiple companies. There are many platforms and solutions that provide capabilities to realize Q2C business process.

Broadly speaking Q2C is typically split into CPQ (Configure Price Quote) and CLM (Contract Lifecycle Management). There is also a related business process called Order-to-Cash (O2C) which can be considered to be a sub-process of Q2C. In this article, instead of using CPQ and CLM, we divide Q2C into three sub-processes: (1) The Sales Process, (2) The Delivery Process, and (3) The Finance Process, as illustrated in Figure 1.

The Sales Process

The Sales Process provides capabilities that starts off from a sales lead and ends up in a signed contract. We identify the following capabilities within this process:

Identify opportunity where a client makes a proposal for a purchasing some IT (Information Technology) services or products. For instance, an OEM (Original Equipment Manufacturer) wants to outsource the repair and maintenance service.
A service provider will look at this opportunity and configure or design a solution that is competitive with other providers.
The solution design typically consists of building cost and price models. In other words, a PxQ model is constructed where P is the price per product or service, and Q is the number of services or products that the client is offering (typically averaged over a period of time).
A quote is then created that is proposed to the client and often there is a negotiation and readjustment of the proposed quote. This adjustment involved re-pricing and rebuilding cost and price models and also the solution design.
If the service provider wins the bid, the quote is converted into a legal signed contract.

For a complex contract with many different services portfolios the contract phase can take anywhere between 3 to 6 months. For subscription-based services, the quote can be done within minutes.

The Delivery Process

Once the contract is signed the client will place orders for services or products. Often the term Orders to Cash (O2C) is used starting from this phase. Fulfilment of the services orders depends on the type of services that was negotiated in the contract. Typically, in the IT services business the customer of the client will call a call center or via a Web interface whenever the client’s equipment that the customer bought needs a repair service. Once again there are many activities within the Delivery phase:

Entitlement and warranty check typically involves validating that the equipment that requires repair services is under warranty, and also checking the entitlement. When the equipment is under warranty the service provider will bill the warranty owner who is typically OEM. Otherwise service provider will charge the customer of the client or refuses to render the service.
Inventory management is all about keeping track of the set of equipment that is under the contract for services.
People and resource management consists of identifying, training and making available the people who will be providing the actual repair service. This also includes other resources such as software and hardware tools necessary to provide the repair services.
Parts management and control consists of purchasing new parts, parts distribution and storage, and disposing of used parts, of parts that are needed to perform a repair service.
Parts logistic consists of shipping and movement of parts from one location to location, typically from a distribution center to customer site or other field stock site that is close to the customer for the service agent to pick it up prior to visiting the customer site.
Service Management consists of the actual repair services based on the contract and meeting the service level that is agreed in the contract. For instance, the contract terms would obligate to provide a depot service in which case the customer of the client to initiate the need for repair service will either go in person to a repair depot or would mail the equipment to a specific address for the repair. The service level would also obligate the service provide complete the service within a day.
Billing Process consists of identifying the actual service provided based on the contract and other exceptions and creating the itemized record of the different services rendered and creating a bill of records that is then submitted to the client. Typically, the bills are sent to the client every month and the client can dispute some of the billing items. We distinguish between billing and invoicing. Eventually, the billing items are converted into an invoice that is tracked in Finance phase. Bill of records typically does not include taxes and other local fees, which is added later to the invoice.

The Finance Process

Finance phase consists of management and control financial aspects of services, starting from bill of records that the service providers submitted to the client.

Billing reconciliation and dispute management where service provider and the client would go back and forth on billing items. Keep in mind that the type bill of records depends on the type of contract, such as subscription-based billing, usage-based billing, etc.
Converting the bill of records into an invoice that is then submitted to the client and tracked with in the financial tools, such as accounts receivables, of the service provider.
Finally, the cash that is paid is also tracked with in the accounting ledger.

There are many other financial controls are performed during this process.

Different Contract Types

There are many different types of contracts that can be signed between a service provider and the purchaser. Here we will highlight a few of them:

Volume-Based Contract: Here the contract is priced (with discounts, if needed) based on volume of incidents, parts, and other hardware and software repairs.
Install-Based Contract: Here the contract is priced on the number of installs of the equipment, software (e.g., images) and devices (including storage devices). These installs can be dynamic and often either maximum or average number of installs is used to price the contract.
Usage-Based Contract: Here the contract is priced on usage such as usage of software licenses, usage of services, etc.
Subscription-Based Contract: Here the contract is priced on periodic (e.g., monthly) subscription of hardware and software repair services.
Maintenance Service Contract: Here the contract is priced on providing maintenance services, which includes repair and predictive services.
Time and Material Contract: Here the contract is priced on labor hours (which could include automation hours) and materials (such as parts, software tools used, license fee, etc). Often this type of contract will also include price for project management, meeting etc.
Transaction-Based Contract: Here the contract is priced on repair-related transactions (aka repair events). For instance, a service provider can change $11 for handling incoming calls.

We need to be able to separate cost and price models in these contracts. Very often cost models involves tracking or modeling every transaction which includes time, material and other overheads (such as project management cost). On the other hand, price model focuses constructing different types of contracts depending on the needs of the purchases and capabilities of the service provider.

It is important to keep mind a signed contract can contain elements from many different contracts. Also, every contract will contain exceptions and violations (e.g., SLA violations) that need to be handled as part of the cost and price models. For instance, a purchaser may slap a penalty fee for violating SLA (Service Level Agreement), or may not pay the service provider for re-fixing the same problem on the same machine more than once.

Let me stop here for this article. I will continue to write my point of view on Q2C in future articles.