Definition and Examples of Revenue Cycle in Business

In order for a company to continue to grow and operate, it must continuously generate income. This is the reason why companies must have a revenue cycle if they want to continue to grow and develop.

To have a revenue cycle, a company needs to have a product or service that can be sold to customers. However, what is the revenue cycle and what are the various examples in business?

What is Revenue Cycle?

The definition of revenue cycle in a company is a series of business activities in providing goods and services to customers, billing for goods that have been delivered or services that have been done, then the company receives money or cash from these customers. A series of activities in the revenue cycle can affect other cycles, such as the purchase cycle, production cycle, account cycle, and also the human resources cycle.

Meanwhile, Marshall B. Romney and Paul John Steinbart in a book entitled "Accounting Information Systems" translate revenue cycle as a series of repetitive business activities and information processing operations related to providing goods and services to customers and collecting payments for these sales.

Examples of activities in the revenue cycle are receiving and responding to customer needs, approving credit sales, billing customers for goods delivered and services performed, updating sales and receivables, and so on.

Romney and Steinbart explain that the revenue cycle has four basic activities, namely:

1. Receiving orders from customers (sales order entry)
2. Shipping
3. Billing
4. Receipt of cash (cash collection)

Various Examples of Revenue Cycle in Business

Every company must have different stages in the revenue cycle, this depends on the type of business. However, basically the overall procedure remains the same. Where the revenue cycle begins with the provision of a product or service, and ends when the invoice is paid in full. To make it clearer, consider the various examples of revenue cycles in the following types of business!

1. Revenue cycle in the online publishing business (online publisher)

Internet businesses that operate websites (that sell advertising space) usually have different stages in the revenue cycle pipeline. The revenue cycle in these businesses is typically characterized by advertiser credit checks that are completed prior to a sale.

Internet businesses that operate websites (that sell advertising space) usually have different stages in the revenue cycle pipeline. The revenue cycle in these businesses is typically characterized by advertiser credit checks that are completed prior to a sale.

For example, when an advertiser contacts an internet company, a proposal for ad space and financial terms may be made while a credit check is being processed. If approved, the advertiser may be asked to sign an agreement that outlines the ad serving schedule and payment terms. Once payment is received and recorded, the revenue cycle is complete for the sale of these services.

2. Revenue cycle in the manufacturing business (manufacturer)

In a manufacturing business, the revenue cycle flow begins with the finished product. For example, if a company makes a product in the form of a widget and promotes the widget through sales staff, then a salesperson can contact potential customers directly.

When the seller receives an order, the first procedure that must be carried out is to check the availability of the ordered goods through the procurement and production department. After that, the seller will add credit and place the order.

In the company's system, orders will be packed and ready to be sent to customers. When the order is received by the customer, the balance will be paid and the credit will be automatically written off. Thus, the revenue cycle for this sale will be completed.

3. Revenue cycle in the service industry business (service industries)

Unlike manufacturing businesses, the revenue cycle in service industries is much simpler. For example, the revenue cycle in the hair salon business. In this service, the invoice cycle is not needed, so the flow becomes simpler. For example, salon owners set prices for hair cutting services. When a salon owner provides a haircut service to a customer, the customer will immediately pay for the service after or even before the haircut service is performed. Thus the income cycle is completed.

4. Revenue cycle in the healthcare providers business

In this business, the revenue cycle is much more complex. For example, a patient receives services from a health care provider. After that, the patient will receive a fee bill. If the patient pays bills through insurance, then the first thing to do is submit a claim to the insurance company to make payments. If the insurer only pays part of the bill, then the rest of the bill can be paid by the patient. The health service provider as the recipient of the payment can end this revenue cycle if the payment has been received.

Those are various examples of revenue cycles in business. Every company must have different stages in the revenue cycle, this depends on the type of business. However, basically the overall procedure remains the same.