Everything You Need to Know About the Order-to-Cash Process

Oct 23, 2022

The order-to-cash process (O2C) is about how a business processes its orders, delivers its goods/services and gets paid by its customers. Refining an order-to-cash process can help your business maintain a consistent customer base and accelerate your turn-around-times for getting paid by your customers, as well as help them receive their goods/services faster. An ineffective O2C system may be affecting your business in ways you haven’t realized: invoicing disputes, outstanding/inaccurate payment collections, inaccurate sales orders, higher DSO,  low customer satisfaction and unclear resource/inventory insights are all symptoms of an O2C system which isn’t functioning at its best. 


Considering that the O2C process covers each touchpoint of your business’s cash-earning lifecycle – from processing an order, to receiving a payment, to delivering your goods/service to customers – it can only be beneficial to know how to finesse your O2C system to suit your personalized, industry-specific needs, and earn the most money you can. Improving your O2C system can seem an impossible task to do manually, which is why looking into an automated option, provided by a software company, is the optimal choice for boosting your customer service and general operational efficiency – as well as your overall cash flow.  According to a 2020, BCG study, clients who upgrade to a successful, automated O2C system can benefit from “15% to 30% savings in cost, owing to…fewer disputes that need resolution, and fewer penalties for late or incomplete fulfillment of orders.” 


Below, we’ll break down a thorough guide to each phase of the process, and highlight how an automated process can proactively intercept any errors or threats to your business’s financial security. 


But first…is Order-to-Cash the same as Accounts Receivable?

It’s a good question – they are actually different! O2C refers to the entire order management process of a company, from customer placing order to collecting and reconciling the payment. Accounts Receivables refers to the specific stage of the order-to-cash process wherein a customer makes a purchase and the money collected is stored as an asset until the transaction is approved.


1. The Order Placement Process 

Your Current O2C System: A customer makes a purchase of a good/service. Your order management system then logs this order – prompting staff to collaborate and prepare the product/service for delivery. Because your current O2C service may not be operating at optimal efficiency, the turnaround time for packaging, responding, tracking and delivering your product/service may be slower than it could be. This puts additional performance pressure on your sales, processing, admin and credit collection officers/staff. 


An Optimized, Automated O2C system: A customer makes a purchase of a good/service. This is automatically logged in your system. Relevant staff are notified instantly, ensuring that departments aren’t forced to complete order-management tasks outside of their allotted responsibilities, and accelerating your processing speed. 

2. The Credit Approval Process 

Your Current O2C System:. If your O2C system is not able to automatically and consistently check that clients are financially stable, meaning you can guarantee timely payments from them once the order is placed, it isn’t operating effectively. Furthermore, you may be losing credit. 


An Optimized, Automated O2C system: Will identify any credit risks when a client interacts with the sales team or when a client makes a purchase, meaning you can assess creditworthiness in real time. Many strategies can be applied based on the creditworthiness of the client, to improve business/customer relationships. You can provide credit to the customer, or deny it, depending on the data provided to you. 


3. The Order Fulfilment Process  

Your current O2C system: The product/service is delivered to the client, given that their credit has now been approved. Inaccuracies in stock availability, product/service delivery and shipping dates, or incorrect orders can pop up when an order-delivery process is managed manually. For the service industry – based on the order received – the proper assignment of resources will ensure the successful delivery of the project to the customer. 


An Optimized, Automated O2C system: With automated order-tracking software and better channels of communication with the customer, including update emails and texts can help boost customer satisfaction and transparency between client and service/goods provider. Implementing automated functions also helps deliver the purchase order faster.  


4. The Invoicing Process 

Your current O2C system: Now that the product/service is delivered, the client is billed. Often, inaccuracies from manual data entry can arise in this stage. If the customer’s details are incorrect, there is the possibility of outstanding Accounts Receivables and loss of credit. For the service industry, incorrect entry of project timeframe, milestone or expense in the invoice can result in delayed payments.  Manual entry also places unnecessary stress upon the finance and administration teams, resulting in slower turnaround times and possible errors. 


An Optimized, Automated O2C system: Automated eInvoicing removes the possibility of data entry errors, and increases order-processing transparency between customer and business. With real-time, accurate information regarding client details, credit, and order specifications, the billing process is both faster and more efficient. In fact, the BCG finds that an effective O2C system can result in “Up to 30% shorter days sales outstanding, thanks to appropriate stock levels, lower process lead times, less revenue locked up in collections.” 


5. The Accounts Receivables Process 

Your Current O2C system: You’ve identified some outstanding credit and late payments. This phase is more of a caveat depending on how your creditworthiness checks are going – but it is important to respond proactively and protect your business from any potential credit loss. At the moment, you may be notified of these issues too late – meaning you have to send payment reminders manually, or may have even lost track of where you are in the O2C cycle with particular clients. 


An Optimized, Automated O2C system: Will support your Accounts Receivables Manager and Finance team by providing them constant visibility into each stage of the order to cash process. Additionally, you will be able to generate and send automated invoice reminders and enhance communication with your customers, to ensure that the payment is not missed. Additionally, it is easier to prevent and intercept any fraudulent behaviour because your system is automatically, and constantly, scanning for financial red flags. 


6. The Payment Collection Process 

Your current O2C system: You receive your payment from the client. Ineffective O2C systems can often result in outstanding payments which go unseen, or double-ups on invoice reminders, which can turn customers away from your business. Additionally, without the help of an automated O2C system, it’s hard to have visbility into the payment details of each customer – there is the possibility of lost transactions, or customers making further purchases without having paid for previous POs.

An Optimized, Automated O2C system: All departments, and clients, will be automatically notified of any overdue payments. Complete payment transparency means that you will always have reliable data and receipts for invoices. You can also automatically identify any credit risks, and stop additional purchases from being made before your payment is received – protecting your cash flow.

7. The Analysis and Data Implementation Process

Your current O2C system: May provide surface-level insights and visibility on your cash and credit management, as well as customer satisfaction. This step is perhaps the hardest to get right without the assistance of an automated O2C software because it is time-consuming and in-depth, but getting it right can result in significantly faster payment times, enhanced visibility into your customer relationship management life cycle, and reduced outstanding payments/credit risk – because you will be able to perform manual tasks automatically, and increase accuracy. 

An Optimized, Automated O2C system: Will provide real-time updates into the financial behaviours of your returning customers/prospective customers. The benefits are interdepartmental as well, with sales and marketing teams benefitting from insight into how best to target creditworthy clients. Avoiding “siloed” financial teams is anticipated by an automated O2C management system, because credit risk or other client-based financial discrepancies  are immediately identified throughout each step of the O2C life cycle. 

Reltiva’s order to cash automation software provides features that enables companies to reduce DSO and improve their cash flow.  Are you ready to see the Reltiva in action?  Book your demo to get started.