Revenue cycle management (RCM) helps maintain a steady cash flow, allowing you to track payments and invoices throughout the customer journey. RCM can also reduce revenue loss, which is crucial for small businesses with limited time and resources to spare.
However, managing an effective revenue cycle can be challenging. Inaccurate invoicing, delayed payments and inefficient collections can disrupt cash flow and strain operations.
In this article, you’ll learn what RCM entails, why it’s important and how to overcome the key challenges. You’ll also see how tools like Pipedrive can simplify and optimize the revenue cycle for better cash flow management.
What is revenue cycle management?
Revenue cycle management involves managing every step of revenue generation – from initial customer interactions to final payment collections. Activities like quoting, sales invoicing, payment processing and resolving billing issues are all part of this process.
Effective RCM keeps cash flow strong, minimizes revenue loss and helps businesses get paid accurately and on time.
Example of a revenue cycle management: healthcare organizations
RCM is a well-known and essential process for healthcare providers. Given the complexity of healthcare services (including insurance claims, copayments, reimbursements and patient care), RCM helps providers get paid on time while maintaining compliance with regulatory requirements.
Here are the key elements of healthcare revenue cycle management and their definitions:
Patient registration | Collecting demographic, insurance and medical information in health systems to ensure a smooth claims process. |
Insurance verification and authorization | Confirming health plan and insurance coverage eligibility and obtaining approvals to reduce the risk of claim denials and streamline patient payments. |
Charge capture | Recording all billable services and procedures during a patient’s visit. |
Medical coding | Translating diagnoses from EHR (electronic health record) systems into standardized codes (like ICD-10 or CPT) for medical billing. |
Claims submission | Sending claims and clinical documentation to payers promptly and accurately, typically through electronic billing systems. |
Payment posting | Applying payments from insurance companies to the correct patient account. |
Denial management | Identifying, appealing and correcting denied claims and rejections to recover rightful revenue. |
Patient billing and collections | Sending statements, offering payment options and following up with patients on outstanding balances. |
Reporting and analytics | Monitoring performance metrics, spotting trends and making data-driven optimizations across the revenue cycle. |
Does RCM exist outside of healthcare?
RCM is commonly associated with the healthcare industry, but is widely used across other industries. In B2B settings, it’s also known as “revenue management” or “order-to-cash”. The process generally includes:
Sales order processing | Receiving, confirming and tracking customer orders. |
Generating and sending invoices to customers for products or services. | |
Accounts receivable | Managing and tracking customer payments. |
Cash application and collections | Applying customer payments to their accounts and following up on overdue invoices. |
Dispute resolution | Addressing and resolving any issues or disagreements related to billing or payments. |
Here’s how RCM processes exist across other sectors:
SaaS sales and subscription businesses. The process involves handling customer subscriptions, billing cycles, renewals and tracking payments. These businesses often refer to RCM as “subscription management” or “revenue recognition”.
Professional services firms (like law or consulting). RCM covers client invoicing, tracking project milestones and ensuring timely payment in these industries. It’s often known as “billable hours management” or “project billing”.
Manufacturing and logistics. For manufacturing companies, RCM involves overseeing customer orders, production schedules, shipping and invoicing. The process also focuses on tracking inventory turnover to maintain a consistent cash flow.
Education. Schools and universities (especially private institutions) implement RCM to process tuition payments, student accounts and financial aid, ensuring proper invoicing and payment collection.
Regardless of the industry, RCM’s core goal remains the same: to create a predictable, efficient flow of income that supports long-term growth and financial stability.
Why effective revenue cycle management is critical for business success
Effective revenue cycle processes directly impact cash flow, operational efficiency and overall profitability. By streamlining billing, reducing errors and accelerating payment collection, businesses can ensure financial stability and focus on growth.
Here’s a closer look at why RCM is essential for driving business success:
Improve cash flow and financial stability. A streamlined revenue cycle helps you collect payments efficiently and on schedule. Reducing the time between service delivery and payment receipt improves your cash flow and financial stability.
Optimize billing accuracy. RCM helps you capture financial data (like invoice amounts and payment due dates) accurately and promptly. This data helps with forecasting, sales budgeting and making other financial decisions.
Boost customer retention. A well-managed revenue cycle ensures you bill customers correctly and on time, improving their overall experience and potentially increasing retention rates.
Increase operational efficiency. Effective RCM eliminates bottlenecks and inefficiencies within the billing process, reducing administrative costs and freeing up resources for core business operations.
Perform accurate financial reporting. RCM helps you capture financial data (like invoice amounts and payment due dates) accurately and promptly. This data helps with forecasting, budgeting and making other financial decisions.
Minimize the risk of revenue leakage. An effective strategy reduces leakage by improving billing accuracy, ensuring timely collections and addressing discrepancies before they impact cash flow.
Implementing RCM also strengthens overall business performance. The process reduces risks, boosts efficiency and strengthens customer relationships, increasing the chances of long-term success.
5 common challenges of RCM – and how to overcome them
Effective RCM is vital for organizations to stay financially healthy, but it comes with operational and administrative challenges. These challenges can affect cash flow, efficiency and overall profitability.
Here’s a closer look at common issues and how to tackle them:
1. Inaccurate invoicing
Inaccurate invoicing involves errors in the invoicing process, such as incorrect payment amounts, missing details or wrong payment terms. These mistakes can cause payment delays, create customer disputes and impact cash flow.
Say that you bill a customer for the wrong amount. Here’s what can happen:
You reissue the invoice. Issuing a new invoice (which includes reviewing and checking the correct amount) takes valuable time and resources away from other activities, such as pursuing new sales opportunities.
You don’t receive payment on time. Invoicing an incorrect amount means having to reissue a new invoice, which can disrupt the payment timeline, disrupt your cash flow and cause financial strain.
The customer is unsatisfied with their experience. Billing errors can negatively impact customer trust and satisfaction, affecting their likelihood of future business.
These issues affect your immediate cash flow and can damage long-term customer relationships. To mitigate these issues, you must ensure total invoice accuracy.
How to solve this problem
Businesses can solve the problem of inaccurate invoicing by implementing effective strategies that minimize errors and ensure timely payments. Two key solutions include automating the invoicing process and using standardized templates.
Let’s look at these solutions in more detail:
Automate invoicing processes to reduce human error. Use invoicing software like QuickBooks or Xero to generate and send accurate invoices. These tools can also send automatic payment reminders to ensure timely follow-up.
Implement a standard invoice template to improve consistency. Create a consistent template with all necessary details, such as payment terms and amounts. Standardizing this process makes it easier to spot errors and ensure accuracy before sending.
If an error does occur, follow up promptly to address the issue. Apologize to the customer and correct the mistake quickly to maintain trust and avoid payment delays.
2. Delayed payments
Delayed customer payments can disrupt cash flow and affect business operations. Overdue invoices can lead to cash shortages, difficulty covering operating expenses and delays in growth initiatives, which can affect business performance.
Think about an SMB that relies on timely payments to pay suppliers. If customer payments don’t arrive on time, the company might struggle to pay these suppliers.
The business may face delayed shipments or stock shortages, leading to operational disruptions and fewer sales.
How to solve this problem
To reduce delayed payments, businesses need simple strategies to speed up collections and help customers pay on time. Here are a few suggestions:
Set clear payment terms. Establish clear payment terms in contracts or agreements, including payment due dates, late fees and any early payment discounts. Ensure customers understand these terms to set expectations and minimize confusion.
Offer multiple payment methods. Make it easy for customers to pay by offering different payment options, including credit cards, bank transfers or online payment portals like Stripe. The more convenient you make it for customers to pay, the less likely they are to delay payments.
Send timely reminders. Use invoicing technology to automatically send reminders before the payment due date and follow up on overdue payments. Incorporate polite but firm language in your reminders, and consider offering multiple touchpoints (emails, phone calls or SMS) to ensure the message gets through.
By establishing clear payment terms, sending timely reminders and offering flexible payment options, SMBs can reduce delays and maintain steady cash flow.
3. Lack of revenue visibility
Lack of revenue visibility can hinder financial planning and disrupt business operations. Without a clear view of your revenue cycle, it becomes difficult to track outstanding payments, spot inefficiencies and forecast future cash flow accurately.
Consider invoicing as an example. Without real-time visibility into overdue invoices or late-paying customers, predicting incoming revenue is harder. As a result, it’s difficult to budget effectively or plan for growth.
How to solve this problem
Overcome this barrier by using invoicing tools with real-time insights into the revenue cycle. These platforms allow for better tracking and more accurate financial forecasting.
Here are some systems and features to look for:
Revenue cycle management technology like Chargebee can analyze data, forecast demand and adjust pricing or availability accordingly. The system provides a full view of the payment lifecycle, from invoicing to collections.
CRM tools like Pipedrive allow you to manage interactions with current and potential customers. The software centralizes customer data and transaction history, making it easier to track payments and spot revenue trends.
Subscription billing platforms like PayKickstart manage recurring payments and subscriptions. The software provides a clear overview of subscription revenue, giving you real-time insights into your renewals, payment collections and financial health.
When choosing revenue cycle management services, look for systems that provide customizable dashboards.
These dashboards provide a clear, at-a-glance view of key financial metrics. Visualizing these metrics makes monitoring cash flow and payment statuses easier, helping you stay on top of your revenue cycle.
With Pipedrive’s insights dashboard, for example, you can easily view conversions, revenue forecasts, average deal value and so on. You can choose what you see to ensure total visibility of your revenue cycle.
Here’s an example of a customizable dashboard in Pipedrive:
4. Inefficient collection processes
An inefficient collection process doesn’t just slow down payments – it puts your revenue at risk.
Without a clear and consistent approach to chasing outstanding invoices, businesses can face cash flow troubles, missed income and even strained customer relationships.
Imagine that you fail to follow up on overdue invoices. Not only will you delay your income, but you’ll also damage trust with customers – especially if they feel neglected or confused about what they owe.
These inconsistent follow-ups can also lead to mounting receivables, which can put pressure on day-to-day operations and finances.
How to solve this problem
A structured and proactive approach to following up on payments is a good place to start. Implementing automation and clear communication strategies helps reduce delays, improve cash flow and maintain strong customer relationships.
Crush your manual admin with this sales automation guide
Here are some ways to build a more efficient collections process:
Develop a streamlined process for tracking overdue accounts. Set up a clear internal workflow that outlines when and how to follow up on overdue invoices – for example, setting reminders after a certain number of days, assigning responsibilities to sales team members and keeping records of all communication.
Create automated payment reminders. Use tools that automatically send payment reminders before and after due dates. These gentle nudges keep your business top-of-mind for customers and reduce the need for manual chasing.
Establish a dedicated collections team. For customers who are consistently late or unresponsive, having a team or specialist who can step in is key. You can focus on other key operations while experienced professionals handle sensitive or complex collections.
Implementing these strategies helps you build a more efficient and effective collections process.
5. Manual, time-consuming processes
Relying on manual tasks for payment tracking consumes valuable time and hinders overall efficiency and accuracy.
Think about manually entering payment details into accounting systems as an example. The chance of making a mistake is much higher, potentially leading to incorrect payment amounts or overlooked transactions.
If you use revenue cycle management solutions to handle the process, the chances of errors are much less.
How to solve this problem
Using software to handle key revenue activities reduces the need for manual intervention. Automating repetitive tasks frees up valuable time to focus on more strategic activities, like closing deals.
Automation also improves accuracy, ensuring your payment processes run smoothly and keeping your cash flow healthy.
Here are some tips for choosing software to handle manual activities:
Invest in automation tools. Use software to automate tasks like invoicing, payment reminders and account reconciliation to save time and reduce errors.
Integrate with accounting and CRM systems. Select software that connects with your existing tools to ensure consistency across platforms.
Train employees on best practices. Provide training on how to use the software effectively to maintain efficiency and minimize errors.
The right revenue cycle management software reduces manual effort and gives your team the clarity, speed and confidence to manage revenue more effectively.
Take control of your revenue cycle with Pipedrive
Pipedrive is a sales CRM that helps businesses manage leads, track deals and automate sales processes to drive revenue growth. Here are some of the ways Pipedrive improves revenue management:
Streamline the sales pipeline
When you don’t track deals properly, you risk losing revenue opportunities. Pipedrive gives you a clear, visual sales pipeline, so you can monitor deals at every stage and keep revenue flowing.
Here’s how to visualize your sales pipeline in Pipedrive:
With everything laid out, you can spot bottlenecks, prioritize efforts and close deals faster.
Automate follow-ups and reminders
Manual follow-ups slow down collections and let payments slip through the cracks. Pipedrive automates reminders, assigns tasks and triggers workflows that keep your team on schedule and your customers informed.
Watch this video for an overview of how to use Pipedrive’s automations:
Send, track and manage invoices from the CRM
Switching between systems to handle invoicing wastes time and increases the risk of mistakes. With Pipedrive’s Smart Docs and invoicing feature, you can create, send and track invoices directly from within the CRM.
Here’s how the invoicing feature appears in the CRM:
Centralizing this information ensures quicker turnaround and offers visibility into invoice status, so nothing slips through the cracks.
Forecast cash flow with real-time visibility
Guessing your future revenue can lead to planning mistakes like overcommitting resources and underestimating cash needs. Pipedrive gives you real-time dashboards and revenue reports so you can track deal progress, spot potential gaps and forecast your cash flow confidently.
Here’s a breakdown of how to forecast revenue with Pipedrive:
Integrate with billing and payment tools
Disconnected systems make invoicing slow and error-prone because you manually transfer data between platforms, increasing the risk of mistakes. Pipedrive connects with revenue tools like QuickBooks and Stripe so you can manage billing and payments directly from your CRM.
The image below outlines the billing overview when integrating with Quickbooks:
Final thoughts
Effective revenue cycle management is crucial for maintaining a steady cash flow and profitability. For SMBs with limited time and resources, ensuring a healthy cash flow is essential for business success.
A centralized CRM like Pipedrive helps businesses track and manage revenue. Real-time insights, automated follow-ups and seamless integrations give teams complete control over their revenue cycle.
Sign up for a free trial today to see how Pipedrive can help you manage your entire revenue process.
