This is part 3 of a series of blogs from FIQAS on optimizing the billing process. In this blog we will focus on the complexities of the rating process.
Rating is defined as the calculation of prices. That seems pretty easy! The correct calculation of all invoice amounts with their underlying details can, however, be quite complex.
For most organizations it is exactly this part of the order-to-cash process that creates the biggest challenge. An attractive new proposition is introduced by Sales and Marketing and should go to market quickly. It must then be billed to your customers transparently and unhindered by technological limitations. Correct amounts on bills result in satisfied customers, fast payments and a healthy cash flow, without operational stress afterwards. Do you recognize this challenge?
During the rating process, invoice lines are generated for the next process step, the actual making of the invoice. The starting point for pricing is a neat set of data in a correct format: the result of the data collection and mediation process. If this data contains no pricing information it must be added during the rating process.
There are several factors that can complicate the rating process, especially when they occur in combination. This happens quite frequently in real life, depending on the complexity of commercial propositions. Above average complexity is found with parties that strategically combine products, services, subscriptions and usage.
Listed below are some of the typical challenges the billing process must be able to cope with:
- Rating is time bound. Price and number plans are valid for a certain period only; usage is realized at a certain date. If this time-related information is neatly stored in an accessible manner the right price can always be applied in the rating process.
- Propositions consisting of different parts may generate usage data in a variety of formats. The rating system should be able to recognize and handle all variants.
- In the telecom market rating should provide for specific items such as the calculation of call bundles and the distinction between prepaid and postpaid usage. Typical as well for this market is the interconnect traffic.
- Elements such as indexation, discounts, promotions, special contractual arrangements, long-term commitments or changes during the course of the contract provide additional complexity.
- System performance and proper interfaces between systems are critical when the rating process is required to process large amounts of data in (near) real time.
- Rating offers more options than just the calculation of invoice lines for customer invoices. The same process technology can be used to calculate commissions for partners or to run accuracy checks on the amounts charged by suppliers and enablers. Propositions and margins can also be calculated using the rating mechanism, in response to the question ‘what if …’.
- Technical issues such as rounding, or applying whole minutes, can have a big impact on margins.
- Rating often involves variable scenarios and complex business rules. The challenge is to organize the process in a way that ensures long term maintainability and manageability. This is best done with a generic rating platform that enables processes to be customized by means of configuration instead of bespoke software.
- Pricing is about details. Even with apparently simple ‘all you can eat’ propositions, it is necessary to calculate prices. For instance, in connection with fair use, fraud prevention, margin reporting and auditing.
- The correct application of VAT is a major complicating factor that must comply with. different rules and regulations in different countries. Correct VAT application starts with a correct rating process.
Rating in practice
In the rating process invoice lines are generated for the next process step. To illustrate, we offer some examples below from FIQAS’ practice.
Example 1: Stacked bundles
A telephony provider has a customer who wants to purchase bundles of 500 minutes per month for 50 employees. The provider chooses to offer these bundles as a ‘stacked bundle proposition’, where the usage is always measured against the overall total. If an individual user uses more than his bundle the excess usage will be settled with bundles of colleagues who have remained within their limits. This procedure is followed for as long as the total operating bundle is not fully consumed.
In this way, the customer does not pay for excess usage as long as unused bundles are available. In addition, both the activation and de-activation of individual users is easier. With each change in the number of users the total operating bundle is increased or decreased automatically. To facilitate the usage rating the total current usage of all users must be known at any time. With each new call the usage is checked against the compound bundle across all users.
Example 2: Near real-time rating
Some FIQAS customers process more than 3 million calls (CDRs / UDR’s / usage records) per day. Near real-time rating is necessary in order to provide insight to end-customers via a web portal at any time, but also to detect extremely ‘high usage’ quickly in the context of fraud prevention. The rating process is a process of continuous rating, controlling the results and comparing them with benchmarks.
Example 3: Separate price agreements per customer and classification of CDRs
Telecom providers like to offer their business customers custom pricing agreements. These can be registered in separate price lists for each customer, in which discounts are included in the listed rates. With a customer base of some size this would result in an undesirably large number of price plans.
For a less complex and more direct approach for a FIQAS telecom customer the discount percentages for each level (as prefix, call type, etc.) are therefore applied to one standard price table. In the rating process the usage records (CDRs) are classified before the price is added. Next the price can be calculated in an efficient manner, and can be broken down on the bill to meet the requirements of the end customer. In this way propositions of the ‘bundle X is free calls to zone Y’ type are made visible.
Example 4: Cost Components by CDR
If it is necessary to invoice several distinct cost components it can be necessary to rate usage records separately. Several FIQAS customers distinguish, for example, between procurement, processing (platform) expenses and terminating charges components. In the rating process each usage record is split based on codes in the record and provided with a price for each component.
These components are consolidated on the invoice or shown as separate items. It is important (also for accountability purposes) that the individual components of each usage record can be traced back to the original record.
Rating, the translation of propositions to invoice amounts
In dynamic businesses marketing considerations have a big impact on the billing process. Propositions of various kinds have to be translated into error free back office processes. That is where the complex calculations are done that are the basis for the invoices.
Rating is a critical process that has a direct relationship with cash flow. A process that is so important – rating, but in fact the entire order-to-cash process – requires powerful and flexible software.
Other topics and why this series?
Other topics in this series:
- Part 1: Billing, it could be better
- Part 2: Data collection
- Part 4: Invoice creation and distribution
- Part 5: The collection process
- Part 6: Auditability and compliance
The FIQAS specialists have a wealth of experience in organizing, executing and optimizing billing processes. The business cases that we see are often narrowed down to one or two of the above aspects. With this series of articles, we try to do justice to the bigger picture. In part four of this series we will focus on the processes and best practices concerning the production and distribution of invoices.
Dennie van Beelen
FIQAS is an authority on invoicing processes, established in 1989, with renowned international customers and operating from Aalsmeer (greater Amsterdam area).