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What is Order to Cash Process?

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Order to Cash is the end-to-end order processing cycle. It is a series of events that take place after a customer places an order and continues until they pay for it.

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Introduction

Order to Cash, aka OTC or O2C, is the end-to-end order processing cycle. It is a series of events that take place after a customer places an order and continues until they pay for it - in other words, the journey from order to cash.

In this post, we will look at the standard Order to Cash Process, its limitations, and how automation overcomes these. So let’s get started!
Order to cash

Steps in Standard Order to Cash Process

While it may differ from industry to industry, the typical Order to Cash Process flow takes place in the steps detailed below:
  1. Order Placement and Management
    Order placement is the culmination of all the sales and marketing activities. Once the customer places this order, either through eCommerce, order processes, direct sales, etc., it kicks off the Order to Cash process. At this juncture, businesses should waste no time in accepting the orders after ensuring that the order can be suitably fulfilled. All the details of the order are recorded in the sales ledger.
  2. Credit Management
    Supply Chain Risk Mitigation
    While evaluating the feasibility of honoring the order, the supplier also runs a credit risk assessment of the customer. This stage involves a thorough review of the buyer’s credit portfolio and whether they have the ability to pay. The terms of credit are also worked out right at this initial stage to prevent any payment risks or delays.
  3. Order Fulfilment
    To ensure that businesses are in a position to fulfill all incoming orders, they are required to maintain a sizeable inventory that can take care of ongoing and possible future orders. As a result, inventory values must be updated in real-time to prevent accepting orders that the company cannot fulfill. In the event that a business inadvertently accepts the order for out-of-stock items, the issue must be flagged and the order canceled immediately.
  4. Order Shipment
    Once the order is ready, it is handed over to the logistics partner responsible for last-mile delivery. Any details surrounding the timelines and terms of delivery are also shared with them to avoid any last-minute problems. After the shipping partner is successful in delivering the order, the supplier collects the proof of delivery and the bill of lading for record purposes.
  5. Billing or Invoicing
    Most B2B transactions take place through invoicing, which allows the seamless and on-time delivery of the products or services. The billing and invoicing team shall practice care while drawing up accurate invoices to ensure smooth and timely payments post-delivery. Teams will have to account for variables such as order details, specifications, cost, order date, shipping date, delivery date, etc. to create invoices and share them with the customers.
  6. Payment Collections
    Once the invoices have been distributed, the collections team will track and recover the payments from the customers. Meanwhile, the AR teams will follow up with the customers on any outstanding payments until a predefined time limit. For customers that delay or default on payments, the accounts must be flagged and the credit facility must be revoked against their names.
  7. Ledger Management
    For all the payments received in the previous stage, the cash collections must be reconciled with the invoices and closed only after the numbers match. The information is then added to the general ledger and any disputes must be resolved against a set timeframe.

Challenges Encountered by the Order to Cash Teams

Given that the Order to Cash Process is vast and expansive, it is bound to experience several issues, some of these include:
  • Since the Order to Cash Process is highly complex and cross-functional, it does not enjoy process standardization due to the number and variability of the stakeholders involved.
  • The use of different techniques and methodologies across separate departments, when paired with frequent handovers, can result in miscommunication and drop-offs.
  • First-time-right and on-time order delivery issues.
  • Accepting sales orders manually can inject inaccuracies within the Order to Cash system.
  • The lack of master data, be in the form of customer details or product-related information, can introduce inconsistencies.
  • Frequent order cancellations due to poor inventory management.
  • Delayed invoices and payment collections constrict working capital and liquidity in the business.
  • A clear lack of administrative control and invisibility of meaningful KPIs that translate into results.
Challenges faced by order to cash teams

Why Should You Automate the Order to Cash Process?

When one considers the key problems faced by the Order to Cash process, it is apparent that a bulk of these can be addressed through the power of automation. Some notable benefits that automation may deliver includes:
  1. Multi-fold Savings
    The delays that may take place during the invoice creation or delivery stage may snowball into delayed payments and cash restrictions. However, introducing automation in the post-delivery process of reviewing the proof of delivery and verifying the order details can help in the drafting of accurate invoices that may be dispatched automatically, thereby saving you time, money, and labor!
  2. Improve Cash Flow
    Improve Cash Flow
    By streamlining the Order to Cash process, automation eliminates any bottlenecks that may crop up during inventory management, invoice delivery, payment collection, or reconciliation. Such measures will eliminate the friction in the processes that fetch cash into the organization.
  3. Boost Accuracy
    Automation is known to outperform manual processing, be it in speed or accuracy. Since data transfers will take place automatically and there will be no manual entering or copy-pasting of data involved, the order to cash process would be free from human errors.
  4. Enhance Customer Experience
    By automating the Order to Cash process, you would be introducing consistency in all your operations. This consistency will translate into brand building and reliability, which will add value to the customer perception and simplify payments collection.
  5. Gain Visibility in Real-Time
    The automation of the O2C process offers real-time visibility of data and workflows that lends greater transparency. Further, it makes reporting and auditing easier as it records all the instances, transactions, and activities throughout the value chain.

Conclusion

An efficiently managed Order to Cash Process can deliver a bouquet of benefits that promote customer satisfaction and lay the foundation for your business’ success. Conversely, even the slightest errors in the O2C process can avalanche and cause embarrassment to your business. Automation allows the end-to-end optimization of the Order to Cash cycle to bring your company up to speed on smarter financial management. So, deliver value from the word go through O2C automation!
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