Your Complete Guide to Quote to Cash: Part 1

How much cash is your billing process leaving on the table?

Every extra day between delivering value and sending an invoice is another day you’re waiting to get paid.

And as pricing gets more complex, with usage, tokens, credits, commitments, and custom terms, billing lag compounds fast.

Tabs is built to eliminate that lag by turning contracts and usage into accurate invoices automatically, without the spreadsheets and manual work.

The impact? Faster billing. Faster cash. Less work for finance.

So what is billing lag costing your business?

Use the Tabs Billing Lag Calculator to get your number. 

Gee wiz. I run a recruiting company now. Life comes at ya fast.

We do Strategic Finance and FP&A hiring. And we place at the manager, director, and VP levels. Is it time to find your right hand person?

👋 Hi, it's CJ Gustafson and welcome to Mostly Metrics - my newsletter for CFOs about the metrics and financial strategies behind the world's best businesses.

I'm a nerd when it comes to 'quote-to-cash'. Which, I admit, is a loaded term.

The simplest definition:

So, like, the finance version of alchemy.

Now, a lot of people think quote-to-cash starts with a quote, which would make a lot of sense, given the name, but it begins much earlier. And the dance don’t stop once you collect.

Say what?

Or as my dad likes to say:

Which raises a question I couldn't answer easily when I started this investigation: whose job is this?

It runs through sales, product, finance, accounting, and legal, and each one will claim stake to a chunk of it (while simultaneously not wanting to own all of it).

Hold that thought.

In this three part series we're going to go through the 8 layers of the Quote to Cash Process:

Billing will get its own post because it's the fastest evolving layer of the stack, given the advent of usage based pricing, commitment models, outcome based pricing, metering, and all the other fun party tricks that come with "doing AI".

In third grade you traced a Bill's journey through Capitol Hill. In the following series you'll trace a Dollar through the Quote to Cash process.

Shoutout to my Q2C sensei Wisam Hirzalla, former Head of Product for Stripe Billing. Without her this guide would not be possible.

Listen to her RTN appearance on: Apple | Spotify | YouTube

Before a sales rep creates a quote, you need to price and package your product

(Well, technically, people have to invent the thing that's packaged and priced, but tomato tomato).

And this part of the process has become increasingly active. Historically, companies would update their pricing maybe once a year. Today the innovation curve and cost implications of AI are very high, and user behavior is changing rapidly. Which makes it important to update pricing to align to our unit economics more often.

(Thank you for attending my TED talk)

The most popular pricing models we see today are a hybrid of usage and recurring. You see this with Claude and OpenAI: it's $x per month, you get this much usage, and then you can go over in a variable manner.

The other model gaining traction is credits with auto top ups. You buy a pool of credits, which entitle you to some amount of usage, and then you're topped up automatically when you run out.

If you're designing this for an enterprise, the packaging question is where the credits pool.

As you scale, pricing needs an owner and a process. If it's a free for all you get inconsistent discounting and SKU proliferation. And that blows up finance’s spot later on in the process when they try to generate the invoice and it’s just a picture of a monkey humping a coconut.

Not to belabor the point, but how you price impacts every other layer of the Q2C stack, which we’ll see throughout this guide.

When you generate a quote, the first thing it has to do is summarize all of the billable items the sales person agreed to with the user.

And in today's world, it's no longer just "Pay me $100K at the end of the month." There's usually a set up fee, a usage fee, an overage fee, a take my kids to Disney World fee etc.

Many of the billable items are variable in nature in terms of the time they are billed and when they are billed. And of course to quote someone we have to…

All that data needs to be sent to finance so it can go in the quote and so finance can close the loop when they count and reconcile the money.

Important to note that quoting gets even more complicated at the enterprise level because there are usually multi product deals that confer special discounts (I feel like I should be wearing a top hat when I say ‘confer special discounts’). There can also be special service level agreements (SLAs) around outages and their associated refunds. Or a most favored nations clause or price caps. And all of this has a lot of downstream impact on the billings system and the humans who have to operationalize this.

What information in a contract drives billing downstream?

You can boil down what a contract has to say to its core elements:

And the hardest part is under what rules. The other stuff is pretty well contained and pretty easily reasoned.

Finance teams very often discover that what was sold is not actually billable. So a best practice is that when you generate a contract, before it goes off for signature, someone has to generate the next month's invoice (hot life tip), because that's usually the moment people discover we cannot collect.

It's the equivalent of counting your ARR before it hatches - can't generate an invoice, can't collect.

Someone still has to decide who gets to spend those credits. People forget that after someone buys you have to give them access to something.

If you rewind back to the old world of giving someone access to Microsoft Word, you are giving them access to the whole program. Yes, there are paywalls, but there are not entitlements in a modern sense. It was just you're either in, or you're out (George Clooney in Oceans 11 voice).

Today we have restrictions on certain LLM models. You guys over in that department cannot have Fable (it’s a national security concern!). And I need to be able to turn off model access to you at a moment's notice.

We also have usage caps, which used to be really rare three years ago, to say you can only do a thing five times before I block you. That is now very common.

Wisam asked if I'd used the Monarch MCP connection. I've had Monarch for three months and didn't know that was a thing. On the basic plan you get the connection but they cap you at five writes, so you can go in, re-categorize a few things, and then you're cut off. Wisam's read is that it's brilliant pricing, because you feel the wall and then you go buy the next SKU up. It also stops a guy like me from wiring up unlimited reads and writes to see what my wife is buying at the furniture store and costing them a gazillion dollars.

Net net, revenue leakage is very expensive when you get entitlements wrong.

I've found that doing entitlements right is less a permission thing and more a mechanism for upsell and revenue generation (plus, a way to stop leakage).There’s both an offense and defense aspect to entitlements. 

OK, so our dollar has been priced, quoted, contracted, and provisioned. It hasn't been billed.

Which is the layer changing the fastest, and the one that's leaving the ERP (GASP).

Post #2 next week! The weather man says its gonna be a billings bonanzaaaa!

I covered the entire Quote to Cash Process (in excruciatingly fun detail) with Stripe’s former Head of Product for Billing, Wisam Hirzalla. This is the DEEP cuts.

Wishing you a quote to cash process with clean entitlements,

CJ