What is Order to Cash (O2C) [Steps, Impacts, Benefits] (2022)

The Order to Cash (O2C) process is a segment that enhances a company's relationship with its users. While most companies seem to focus more on marketing, developing the Order to cash process gives you the space to improve customer experience. In addition, it makes the process more responsive in general.

This blog will highlight the entire O2C process, from order placement, the impact of O2C on your business, the steps involved, and more. So, with that being said, let's get into it and learn how to implement the best O2C process for businesses.

Table of content

  • What is the Order to cash process about?
  • Why is O2C important?
  • How does the O2C process impact your business?
  • What is the difference between order-to-cash and procure to pay?
  • What are the steps involved in order to cash process?
  • Order management
  • Credit management
  • Order fulfillment
  • Order shipping
  • Customer invoicing
  • Accounts receivable
  • Payment collections
  • Reporting and data management
  • Conclusion

What is the Order to cash (O2C) process about?

The Order-to-cash process encapsulates the entire order processing system. It starts right from the second a customer puts together an order. Every other process before the beginning of the O2C process is somewhat more on the side of marketing, promotion, branding, and sales.

Don't get this wrong, and this does not denote that the purpose of marketing and branding ends right after the order-to-cash process begins. But the critical functions of these processes run right before the O2C process starts in action. It is also crucial to keep in mind that the O2C process runs along until the customer pays and receives the Order. Post the O2C cycle, other activities like analyzing the data tracked throughout the O2C cycle are a must. This helps management identify opportunities for development and enhancements.

(Video) Order to Cash (O2C) Process Overview and Accounting Entries

Why is O2C important?

The O2C cycle takes care of more than just order management. An efficient O2C process makes sure to run seamless operational functions and gives that space for your company to prosper in all facets of the business. How the O2C cycle has an impact will be discussed in detail below.

What is Order to Cash (O2C) [Steps, Impacts, Benefits] (1)


How does the O2C process impact your business?

The Order-to-cash process has an overall impact throughout the company in all operations. This includes inventory management, supply chain management, and more. Bottlenecks or delays in one segment can cause hassles for units that are independent.

Secondly, the organization's cash flow relies on the invoicing and accounts receivable functions carried out throughout the Order-to-cash cycle. Therefore, any form of lags and delays in the collection has the potential to perplex accounts payable, payroll, potential acquisitions, and other liquidity issues.

Finally, A consistent and reliable O2C process depicts that your company is legit and showcases your organization's credibility. To maintain the O2C process well, you need to transcend every facet of the business from manufacturing, sales, tech management, shipping, etc.

(Video) 5 ways to improve your Order-to-Cash (O2C) process with Process Mining

What is the difference between order-to-cash and procure to pay?

Order to cash and procure to pay have illusions of similarities, but they portray a pretty different Order of cycles. Typically, O2C encapsulates all the business procedures associated with sales, whereas in terms of procuring to pay, it deals with all the business processes related to procurement from a purchase requisition. So, when a comparison arises between procure to pay and O2c, know that O2C is for sales orders, and the procure to pay is for procurement. It's as simple as it is.

Order-to-cash Process: The Steps Involved

What is Order to Cash (O2C) [Steps, Impacts, Benefits] (2)

If you aim to manage the O2C cycle efficiently, you will require various multiple entities to have access to factual, real-time data at your fingertips to run your O2C cycle seamlessly. Making use of specific tools like automation, digital invoicing, and digital shipping management can help your O2C process run efficiently. Only when multiple forms of tech and control integrate, you get ideal results out of your O2C process.

Here are eight core steps that make up the order-to-cash process.

1. Order management

Order management is the genesis of the O2C process; the process of order management begins as soon as customers place their Order either through an eCommerce platform, email, or even by notifying a sales rep. Keeping your order management system automated is a must as you need instant notifications to fire a series of functions in other aspects of order management. A statistic by IBM even showcased that companies that practiced O2C practices to their best were 81% more efficient with dealing with order management than those companies that don't.

(Video) PAFnow Order-to-Cash (O2C) Demo

Ensure that new orders are classified and concerning personnel is notified instantly to pinpoint and prompt fulfillment.

2. Credit management

Now, you could face specific issues at the end of the Order to cash cycle, but you can avoid them by applying diligent credit management on the front end of O2C. If credit is applicable, Every new customer should be automatically put through a credit approval cycle when their Order is placed. Automated software can help manage approvals and denials, and finance people can be prompted for orders that need extra analysis. The order management software should be able to direct recurring customers with credit approval straight to the fulfillment stage, and returning customers who didn't possess credit during the previous Order, or people who are trying to apply for the first time, should go through the process like new customers coming to the website for the first time. Automated credit management makes accounts receivable seamlessly, and strategic credit guidelines make sure you process credit only to deserving customers.

3. Order fulfillment

Automated inventory management software is a critical segment of the fulfillment cycle. Inventory counts are supposed to be updated on the sales segment simultaneously to avoid accepting orders that don't have a chance of delivering on time. Suppose a specific product is out-of-stock and the Order stands no chance of being delivered on time. In that case, it must be flagged instantly, and the customer must be notified immediately so that you can cancel the Order, thus avoiding billing issues. Always depict your orders sent for fulfillment in a digitalized format so that any individual who begins processing the Order can evaluate all the details clearly.

4. Order shipping

The fruition of order shipping relies on product engineering, Which explains why the shipping portion of the Order to cash cycle needs to be audited on a regular basis to make sure that it meets high-performance requirements. The information from the order and fulfillment management functions must be instantly redirected to the shipping team so they can plan across shipments, schedules and get orders delivered to customers without fail.

5. Customer invoicing

Dealing with credit management and accounts receivable issues, invoicing delays, and inaccuracies can escalate indefinitely and direct to financial problems, causing chaos to the entire company. When accurate invoices are depicted, the personnel in finance can predict cash inflows and schedule expenses accordingly. The invoicing system needs to receive the exact data from respective people who take care of and manage front-line activities. Data figures, like order specifics, costs, credit terms, order date, and shipping date, require to be entered into the invoicing system so that invoices can be automated with the exact data and sent without delay.

6. Accounts receivable

Automated accounting systems have to decline outstanding invoices before they go past the due date. Accounts receivable reps should classify these invoices to find potential errors that can cause any delay in payment. When errors are detected, accounts receivables reps must find a way to review data instantly with the help of an ordering system, find out where the information breakdown occurred, and deliver a detailed invoice immediately.

7. Payment collections

The first defense to avoid payment collection backlogs is to have representatives track down payments received within a specific time-space. Companies face problems when payments made by customers aren't processed and recognized by the ordering system and accounts still display as unpaid. This can lead to hassles when customers are asked to make payments that they already pay. It can also cause inaccurate cash estimates, which shows the finance department can incorrectly predict higher value loss of cash.

(Video) [#005] Laura and Kenneth - O2C (Order to Cash)

When an invoice crosses the overdue period, the customer's account must be declined, and their credit must be withheld. When the customer tries to make another order, the automated system will notify them that they need to make their payment before trying to shop again. Accounts receivable reps should also get into contact with customers who have overdue invoices and explain to them the penalties and fines they can face. Accounting and finance personnel must also classify all outstanding accounts constantly to keep an updated debt forecast and predict further steps.

8. Reporting and data management

Interconnected software programs can keep track of the performance data across every channel of the O2c cycle. By keeping track of it and analyzing this information, Leaders of the organization can get an idea of how the overall flow of their Order to cash cycle has an impact on their company on the whole. This encapsulates everything, from the relationship with clients and buyers, the sales cycle period, customer service activities, and more.

The organization can also take advantage of these data to predict if any backlogs in one space can have an impact on the entire Order to cash process. You have to understand that the Order to cash process is heavily interconnected and dependent; even minor inefficiencies in one operation can escalate to costly situations for the company.

Efficient maintenance and development of the O2C cycle aid businesses in delivering value to their customers and help companies receive their payments on time for the services they provide. With the help of tech, organizations can develop the best version of their O2C processes, which then relieves the staff of their duties so that they can focus on better tasks like enhancing customer service and more.

Conclusion

Whether you find issues with your order-to-cash process or not, it is always recommended to automate it to get the best out of your O2C cycle. Automating your order to cash process increases the efficiency of your order management system, which then allows your company to eliminate the challenges associated with manual O2C processing. This phases out monotonous accounting tasks, allows easy invoicing, and improves the overall cash flow. Monitoring and keeping track of each step in order to cash process will save your organization financially and reduce the overall effort put in, Eventually leading to better customer satisfaction. Good luck!

FAQs

What is Order to Cash (O2C) [Steps, Impacts, Benefits]? ›

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.

What are some of the benefits of the order-to-cash scenario? ›

5 benefits of the Order to Cash process in the company
  • Compliance with deadlines. We all know how dissatisfied customers are when they wait too long for a product. ...
  • Increase in sales. ...
  • Agility in cash flow. ...
  • More accurate inventory monitoring. ...
  • Metrics as business allies.
Jan 22, 2020

Why order-to-cash process is important? ›

Why is the order to cash cycle important? Implementing a comprehensive order to cash process is crucial to completing customer orders within established deadline time frames. A well-established order to cash cycle can help reduce production costs while simultaneously increasing productivity.

What is O2C in simple words? ›

Order to cash (OTC or O2C) is a set of business processes that involve receiving and fulfilling customer requests for goods or services. It is a top-level, or context-level, term used by management to describe the finance-related component of customer sales.

How can I improve my O2C process? ›

5 Actionable Ways to Improve Your Order to Cash Cycle
  1. Defining The O2C Cycle. To provide a common framework, let's first define the O2C (order to cash) cycle. ...
  2. Automation. ...
  3. Standardized O2C Process. ...
  4. Don't Offshore Or Automate Customer Service. ...
  5. Avoid Tacking On Fees. ...
  6. Accurate Customer Data.

What is order-to-cash with example? ›

Order-to-cash is the entirety of a company's order processing system. It begins the moment a customer places an order. Everything before that time is related to some function of branding, marketing, or sales.

What is O2C cycle in interview? ›

Essentially, the O2C or OTC process is the entire order processing system. Also called the O2C cycle, it is how your business receives, processes, manages, and completes orders. It begins from the time an order takes place and includes each step of the delivery and payment process.

What are the steps in the order to cash process? ›

The order to cash process is accomplished in eight separate steps:
  1. Order Management.
  2. Credit Management.
  3. Fulfillment.
  4. Shipping.
  5. Invoicing.
  6. Accounts Receivable (AR)
  7. Payment Collections.
  8. Data Management and Reporting.

What is cash application in O2C? ›

What is Cash Application? In an Accounts Receivable world, Cash application is when incoming payments from customers are matched with their respective open invoices. The purpose of cash application process is to close all such invoices in the ERP for which the customer has paid.

What is the process of O2C process flow? ›

Steps in the O2C Process
  1. Step One: Customer Places an Order. ...
  2. Step Two: Order is Fulfilled. ...
  3. Step Three: Order is Shipped. ...
  4. Step Three: Invoice Created and Sent to Customer. ...
  5. Step Four: Customer Pays Invoice. ...
  6. Step Five: Payment is Recorded in General Ledger.

What is OTC collection? ›

Order to Cash also known as O2C or OTC is the business process that covers the entirety of the order processing system right from receiving the order to up until the point the payment is made and an entry is logged in your accounting books.

What is OTC process in SAP? ›

What Is SAP Order-to-Cash? Order-to-Cash is an integration point between Finance (FI) and Sales (SD). It is also known as OTC or O2C in short form. It is a business process that involves sales order from customers to delivery and invoice. It comprises SO, Delivery, Post Goods Issue (PGI) and billing to customers.

How can order to cash cycle be reduced? ›

Order to Cash Cycle
  1. Streamline the buying process for your customers.
  2. Reduce order-to-fulfillment time for your customers.
  3. Minimize the need for customer support rep intervention.
  4. Fulfill orders accurately the first time they're placed.
  5. Fulfill orders in a timely fashion for customers.
Jan 17, 2022

What is order to cash procure to pay? ›

Generally speaking, the process a business undertakes when making purchases from suppliers is often referred to as “Procure to Pay,” or P2P. The flip side of the coin, the process of receiving payment for goods or services rendered, is called “Order to Cash,” or O2C.

How do I prepare for a collection interview? ›

Role-specific questions
  1. What do you like about this job?
  2. How do you feel about working with targets?
  3. What collection methods do you know?
  4. How familiar are you with FDCPA/HIPAA/etc. ...
  5. Name three things a debt collector should avoid when speaking to a debtor.
  6. How do you ensure you keep track of all outstanding payments?

What are the advantages of sales order management? ›

Key Benefits of a Sales Order Processing Solution
  • Create efficiency through automated data entry and approval routing. ...
  • Improve customer service with easy access to documents and accurate data downstream. ...
  • Reduce days sales outstanding.

What are the stages of OTC cycle list them in order? ›

7 key processes in the order-to-cash cycle
  • Order management. ...
  • Payment processing and credit management. ...
  • Order fulfillment. ...
  • Order shipment. ...
  • Customer invoicing. ...
  • Accounts receivable. ...
  • Reporting and data management.
Sep 1, 2021

What is O2C and P2P? ›

Generally speaking, the process a business undertakes when making purchases from suppliers is often referred to as “Procure to Pay,” or P2P. The flip side of the coin, the process of receiving payment for goods or services rendered, is called “Order to Cash,” or O2C.

What is an example of accounts receivable? ›

An example of accounts receivable includes an electric company that bills its clients after the clients received the electricity. The electric company records an account receivable for unpaid invoices as it waits for its customers to pay their bills.

What is Record to Report process? ›

Record to report (R2R) is a finance and accounting management process that involves collecting, processing and presenting accurate financial data. R2R provides strategic, financial and operational feedback on the performance of the organization to inform management and other stakeholders.

What type of account is cash? ›

A cash account is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account (trading on margin).

Is account receivable a credit or debit? ›

On a trial balance, accounts receivable is a debit until the customer pays. Once the customer has paid, you'll credit accounts receivable and debit your cash account, since the money is now in your bank and no longer owed to you. The ending balance of accounts receivable on your trial balance is usually a debit.

What is another name for account receivable? ›

What is another word for accounts receivable?
billsdebts
invoicesreceivables

What is a chart account? ›

A chart of accounts (COA) is a financial, organizational tool that provides an index of every account in an accounting system. This provides an insight into all the financial transactions of the company. Here, an account is a unique record for each type of asset, liability, equity, revenue and expense.

What is a golden rules of accounts? ›

The journal entries are passed on the basis of the Golden Rules of accounting. To apply these rules one must first ascertain the type of account and then apply these rules. Debit what comes in, Credit what goes out. Debit the receiver, Credit the giver. Debit all expenses Credit all income.

What is balance sheet reconciliation? ›

Balance sheet reconciliation verifies the accuracy of the balance sheet by comparing the numbers on the general ledger to other forms of documentation, to explain any discrepancies. Essentially, reconciliation is done to verify that accounting for a certain period has been accurately portrayed on a company's books.

Videos

1. Order to Cash(O2C) flow in Oracle Applications
(Bizinsight Consulting Inc)
2. Fundamentals of Order-to-Cash Solutions | Best Step-by-Step Guide for O2C Automation Cycle Process
(EMAGIA)
3. Digital World Class Performance of O2C Shared Services | Emagia Order To Cash Software
(EMAGIA)
4. 1529: The Technology Transforming Order to Cash (O2C)
(Neil C. Hughes)
5. Shorten the O2C Cycle with Digital Invoicing & Payments | Order To Cash Cycle Software | Emagia
(EMAGIA)
6. How to Optimize Deal Value in M&A Integration with Order to Cash (O2C) Automation | Emagia O2C
(EMAGIA)

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