Improving the Order-to-Cash Process


All businesses have an order-to-cash process (also referred to as O2C or OTC process). In many ways, it is the counterpart to the purchase-to-pay (P2P) process. The order-to-cash process spans all steps from an order being placed, through the payment being received for that order.

The balance of a business’s accounts receivable ledger, including aged debt and days sales outstanding (DSO), can provide insight into inefficiencies in the O2C process which can be addressed to improve cash flow.

These inefficiencies tend to come from manual processes, which impact the Accounts Receivable (AR) team’s ability to handle invoice creation, presentment, and distribution. As a result, an inefficient O2C process will have a negative impact on payment timeframes, potentially driving up DSO and inhibiting cash flow.

The good news is that there are solutions. By automating the entire accounts receivable process, from credit management to invoicing and payment reconciliation, businesses can optimize every step of the O2C process for improved cash flow by bringing money into your organization faster.

What is order-to-cash and where does this fit in the cash cycle?

The order-to-cash process encompasses all steps from when a customer order is placed up until the business is paid (the cash). Those steps include order management and order fulfillment, through to credit management, then invoicing and ultimately payment collection.

O2C has an implicit connection to the supply of goods and order fulfilment, therefore driving a need for good supply chain management processes to be in place.

Benefits from optimizing the order-to-cash process

The biggest hurdle to accounts receivable productivity is the fact that AR processes are often too complex, with too many disparate financial systems, too little standardization, and too many manual steps. These processes are often compounded by interruptions resulting from issues demanding quick resolution.

As every business leader knows, available cash flow is the single most important metric to determine the health of their business. The AR department has a uniquely influential role in facilitating cash flow. By shortening the time from purchase to order and invoice delivery, as well as simplifying the payment process, cash flows more readily. Therefore, assessing and adjusting the O2C process is the most obvious place to address cash flow challenges.

In addition to cash flow improvements, the top benefits from optimizing the order-to-cash process include the following:

    • Revenue generation ─ a streamlined purchase and fulfilment process, swift, accurate invoicing, and ease of payment improve customer satisfaction and encourage repeat purchasing as well as customer advocacy. These factors can have a positive impact on sales growth.
    • Customer experience ─ customer relationships can be won or lost on the experience of order fulfillment, invoicing, and payments. Having a reliable O2C system to manage invoicing and fulfilment, in addition to disputes and credit collection, promotes accuracy and timeliness, contributing to improved customer experience.
    • Cost savings ─ stronger internal controls through an automated O2C process significantly reduces or eliminates errors and makes it easier to support early payment discounts. With business process improvement, any company can bring down overheads, resulting in lower operational expenses and supporting operational leverage.

Steps taken in the order-to-cash process

Order to cash process, from order and credit management to invoicing system, AR, payment collection, and data management.

1. Order management

Everything starts with an order. A customer places an order via ecommerce, direct sales order processes, or other means. Once the order is placed, inventory is checked by the order processing system to confirm the goods can be dispatched. Once verified, a delivery timeframe is issued. The customer’s credit facility will be checked to determine whether the order was accepted on existing credit terms. The order is then recorded in the sales ledger and the goods are shipped. Finally, automatic re-ordering via the ERP system, is triggered in the supply chain to ensure the inventory is replenished for future sales.

2. Credit management

The vast majority of B2B sales are made on credit, allowing time for an invoice to be generated, sent, and paid, without slowing down the fulfilment of each order. But credit must be awarded based on an assessment of each buyer’s ability to pay. Carefully determining credit at this early stage prevents payment risks when invoices are due.

3. Customer invoicing system

Customers are invoiced for each order to request payment, within a specified timeframe, for the goods they have purchased. The best customer invoicing systems automatically generate and deliver invoices to customers when they purchase. However, invoicing automation needs to take into account a large number of nuances and variables, including invoice format, delivery mechanism and media, recipient, approval process, associated documentation, and many other factors.

4. Accounts receivable

Once a sale is made and goods are shipped, the accounts receivable process kicks in. This encompasses invoice generation and delivery, tracking and reconciliation of payments against the ledger.

Savvy accounts receivable teams will automate the sending of payment reminders, or statements, before invoices are due. It is the responsibility of the Accounts Receivable team to investigate and resolve invoicing errors, reissuing invoices to the correct amount if errors have occurred.

5. Payment collection

The process for customer payments should be made clear at the time of purchase and in the invoice (or accompanying documentation). Payment collection then either occurs through customers making online payments, bank transfers, or submitting payments in some other format. A purchase order number is a typical tracking reference that ensures each payment is correctly matched to the corresponding order. Outstanding invoices are chased directly until a predefined point, at which time they are either written off as bad debt or passed to a third-party collections agency.

6. Data management

Across the O2C process, good data management is key. The order management system needs to connect, in real time, to inventory management via an enterprise resource planning (or ERP) system. In this way, the organization can work across systems to determine stock levels and fulfil orders or trigger reorders.

The invoicing system needs to accept a trigger to create an invoice when orders are fulfilled, the system then pulls in data about the order, checking the customer’s credit limits and agreed payment terms, before generating and delivering an invoice to the correct contact.

The payment collections process then needs to link back to the purchase ledger to ensure payments are reconciled against the correct order. Each and every step can, and should, be automated to improve efficiency and accuracy.

Optimize order-to-cash with automation

A comprehensive approach to optimizing the O2C process will combine technology, consultative services, and financial services. Many organizations leverage technology because it can automate customer credit decisioning or AR and Treasury processes within the O2C cycle. Automation reduces or eliminates manual and paper-based processes. The attendant cost savings and error reduction usually present a positive ROI. Automating the O2C process brings a wealth of benefits, including the following:

Time savings: invoice creation and delivery can be very manual processes, consuming valuable skilled staff hours. By automating print and postal delivery, or the emailing of invoices and delivery of follow-up communications to chase payments, the AR team can focus on more business-oriented issues. Automation can even take output from an ERP system and connect this directly with buyers’ accounts payable invoicing portals – bypassing the need to manually re-key or copy-paste invoices into these.

Improved cash flow: automation doesn’t just save process time, it prevents bottlenecks in invoice delivery, payment processing, and reconciliation. These factors reduce friction in bringing cash into the business, thereby improving cash flow.

Improved accuracy: automation has a positive impact on accuracy across the whole O2C process. When machine systems talk to each other, by direct data transfer, there’s no risk of copy-paste or other human errors occurring.

Cost reduction: the time savings from process automation, as well as reduction in queries and help desk calls, can be so significant they often make investments in aspects of O2C automation, such as AR automation, pay for themselves within a few months.

Improve customer experience: customer relationships benefit from the improvements automation brings to process consistency, fulfilment reliability, brand perception, and ease of payment.

Gain real-time visibility: automation of order-to-cash processes means that each stage is handled digitally, therefore easily tracked and presented at a glance via management information dashboards or other methods.

Simplify reporting and audits: by automating the O2C process, all actions and data are available for grouping and analysing as reports or as audit trails at the touch of a button.

Consistency in the O2C cycle

Consistency across the order-to-cash process ensures predictability of outcomes and presents customers with a positive brand experience. Here are some of the main workflows that need to be followed and checked on a regular basis, or ideally automated, to maximise consistency.

    • Order management: develop a consistent approach to checking stock, fulfilling sales orders, and reordering to replenish stock.
    • Credit management: maintain a consistent approach to determining credit worthiness, setting payment terms and credit limits.
    • Invoicing workflow: create and deliver invoices in a consistent layout, with appropriate branding, in as short of a time as possible.
    • Payment collection: a range of payment options, ideally linked directly from the invoice and with a consistent payment process, reduces problems that may delay cash flow.
    • Late payment reminders: a consistent approach to reminding customers that their invoice is due for payment (perhaps two weeks ahead of the payment deadline), and then sending reminders/dunnings at set timeframes for late payments, will help cash inflow and minimise payment delays.

Promoting customer satisfaction and business success

When fully optimized through automation, the order-to-cash process can have a positive impact on cash flow and customer satisfaction. While tech solutions can bring benefits to your organization, it isn’t enough to bring your O2C operations to where you want it to be. Without providing financial management and consultative services, an automation-only approach cannot deliver the results that you need with the speed demanded by the current financial climate.

At Corcentric, we help clients optimize all aspects of the O2C process, such as invoicing, accounts receivable, and payments. Our experience has shown us that high-tech works best when the deployment is high-touch, so all of our Order-to-Cash software solutions are delivered as managed services. Get in touch directly to find out how we can help optimize your cash cycle through automation of order to cash processes.