Order-to-Cash Process: A Step-by-Step Guide (2022)

Every business that sells goods has an order-to-cash process, whether it’s an artisanal jam company, an artistic t-shirt company or a no-frills vendor selling pallets of roof tiles.

While most business owners know this process exists, some owners are more familiar with it than others. Having a deep understanding of the process and a willingness to examine obstacles along the way tends to result in a more efficient business—with the added benefit of satisfied customers, staff, and vendors.

What is the order to cash process?

The order-to-cash process is a series of steps that begins when a customer makes a purchase—in the case of e-commerce, when the Buy Now button is clicked—and ends when the business has received and cleared the cash for the purchase.

The order-to-cash process, often shortened to O2C in business parlance, includes fulfillment, invoicing and payment collection, among other steps. Decades ago, the O2C process had a reputation for being a chaotic affair, where handwritten purchase orders, faxed invoices and other analog functions were the norm. But now there are many platforms and software options to help businesses streamline O2C processes.

Technology has enabled digital invoicing, tracking and information center hubs that allow sales teams, warehouse workers, accounts payable and customer service to have access to the same information in real time. In addition, almost all workflow processing software provides data for analysis at each step of the O2C process, with metrics helping to illuminate which systems are working and which need improvement.

8 steps to order-to-cash processing cycle

To understand the O2C process, you need a solid understanding of the steps from start to finish:

1. Customer order placement. Purchases can consist of individuals at home buy a product online to businesses or institutions that send e-mail orders in large quantities.
2. Order management. This stage ensures that purchase orders are sent to the correct person or department.
3. Credit management. While most individual customer purchases are conducted in real-time transfers, purchases made by businesses are often on credit. Managing business customer credit may include running payments through the software approval process and green-lighting repeat customers in good standing.
4. Order fulfillment and delivery. This is when business deliver products or services to customer. Various issues can arise during this step, from issuing a sales order for that special pair of shoes when there is literally nothing left in the warehouse to promise a physically impossible delivery date. When software, automation and platforms are used correctly, they can help protect against these mistakes.
5. Invoicing and billing. Whether the customer has paid in full or is waiting for a bill, an invoice with the correct information and status is issued.
6. Account not yet received. Exactly accounting software track overdue and nearly overdue invoices, and raise red flags on repeat offenders.
7. Payment is collected. Software programs allow businesses to track when a customer’s payment transaction is completed.
8. Data management. Comprehensive data analysis helps businesses see where improvements are needed. Depending on the software, businesses can detect patterns of miscommunication, the origins of bottlenecks customer order, and how the inefficiency of one department affects other departments.

How to optimize the O2C process

Consider the following when strategizing how to optimize your O2C process.

• Do you have a set of established standards? A simple handbook with easy-to-understand terminology can help employees navigate the company’s O2C process.
• How effective is your accounting software? There are many accounting platforms and software programs that aim to help business owners with General ledger. This helps in debtor process and inventory management, another interface of the 02C process.

• Are your invoices digitized? It may seem obvious to have digital invoicing system, but some business owners are analog holders. However, most who take the time to learn about digital invoicing find that it can save them time in the long run.

• How often do you check in? Data retrieved from the software periodically can reveal interesting patterns in the O2C cycle of a business. It can indicate redundant processes, customers who pay consistently late, or recurring customer complaints—all of which indicate where tweaks, updates, and changes are needed.

Final thoughts

Most businesses that pay attention to their O2C processes find it pays dividends in terms of efficiency and customer satisfaction. According to a BCG Report 2020 on O2C platforms, “companies that use O2C platforms and reengineer processes increase revenue by 1% to 3% per year.”

Today’s software options provide businesses with concrete data and analyzing these metrics reveals valuable insights. With automated processes, inefficiencies—from fulfillment backlogs to supply chain bottlenecks—are no longer vague abstractions but identifiable issues throughout O2C cycle. When all eight steps of O2C are examined and best practices are implemented, businesses become more efficient. When businesses proactively ensure a positive shopping experience for their customers, they tend to have strong repeat purchases.

Frequently Asked Questions about the order to cash process

Why is the O2C process important?

Streamlined and efficient O2C processes create satisfied customers, which usually translates into positive reviews, organic word-of-mouth recommendations and ultimately, repeat purchases.

What are some of the challenges in the O2C process?

The O2C process—especially for businesses that do high volume sales—has many moving parts, as well as dependencies. For example, businesses depend on customers to pay their invoices on time. When payments are late, businesses have less working capital, which can impact payroll, timely vendor payments, and company morale—all of which can further negatively impact the O2C process and add to the problem.

What are the benefits of streamlined O2C?

When a business runs efficiently, it builds trust internally and externally. Not only are employees more engaged, but the streamlined system allows customer service to answer almost any question. Both customers and vendors can be confident they are working with a reliable business. Creating this type of positive relationship with customers is not only good business practice, but it can give a business a competitive advantage.

source: https://www.shopify.co.id/blog/order-to-cash-process