Revenue Management System for Different Business Environments

The process of managing revenue often differs from industry to industry depending upon the acceptance and delivery mechanism of cash. For example, in healthcare the average collection period is typically low as the payment from the patient is realized and received quickly as and when services have been rendered. But in infrastructure development sector, the realization of payment takes a lot of time even after the construction has been entirely done. Accounts receivable period or accounts turnover ratio being a critical element of any revenue management system, these two aforementioned environments require different treatment as accounts receivable construes a major chunk of a company’s asset. In this article, in order to explain how a revenue management system differs from business to business, we have classified the entire business environment prevailing in any country in two major categories. One is the service industry, and the other complementing one is the manufacturing sector. But even across any one vertical, there are so many horizontal variations at play, which require logical and close scrutiny.

? Service Sector

• Banks and other financial institution which disburses money to its customers in terms of loans are always concerned about collections. Banks make their profit on the interest that they claim on the outstanding amount and if someone pays back the loan before their due date, then it is not actually profitable for the organization. Therefore, most of the Banks, public or private whenever issues a payment gets it linked with the customer’s salary account and deducts a fixed installment per month so that prepayment can be avoided.

• The situation is not at all the same for a real estate material supplier. If his credit period keeps on increasing that means he is losing out on his profit that he has actually estimated. This becomes more critical in an inflationary situation where the purchasing power of money is getting diminished with the advancement of time.

• In any service sector organizations, invoice management is also pivotal as the entire speediness of the collection is actually dependant on how efficiently and comprehensively an invoice is raised.

? Manufacturing Sector

• In manufacturing, a company, especially belonging to the FMCG sector that is in the business of quick selling of goods needs to keep its pricing mechanism under extreme supervisory control. The pricing mechanism should be sensitive to the changing cost patterns and it should be reflective of the change in the price of raw materials.

• Revenue management in the manufacturing sector should also take into account the health of its inventory at large because longer the inventory is stuck, less realization of revenue against the purchasing cost of the material in a particular financial year.

• Any manufacturing industry’s assets largely consist of its fixed assets which go through wear and tear. To realize the exact revenue earned against those assets the depreciation charged against them should be calculated carefully.

Therefore, an efficient revenue management system is that one which takes into accounts every aspect, starting from bidding and submitting quotation for a work, rendering the service of the product in time, raising invoices accurately and realizing cash within the critical period.

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