The Order to Cash process, also referred to as O2C or OTC cycle, is a business process that includes every step of the order flow. Overall, it’s a set of business processes involved with receiving and fulfilling customer requests for goods and services.
This process covers every step from the beginning until the payment is processed. Therefore, order administration and fulfillment are among them, as are credit management, billing, and payment collection. Almost every modern business, especially online, implements an order to cash process.
Table of contents
- Why is Order to cash process important?
- Order to cash benefits
- How Order to cash works?
- Order to cash cycle steps
- What is necessary for Order to cash process to operate?
- How to improve Order to cash process?
- Order to cash vs. Quote to cash
- Order to Cash for Subscription Businesses
The business receives, handles, and completes consumer orders from the beginning of a charge to cash process and delivery. The process implies managing every aspect of the transaction, such as shipping the goods, making payments, generating invoices, and tracking the entire end-to-end process of the transaction.
The order to cash process affects the revenue and customer retention rates, interacts with customers, and overall business growth and cash flows for businesses. The business will maintain a healthy cash flow if it can reduce the cycle time between when accounts payable are due and when it receives the payments for products and services. To be effective, the order to cash cycle must run smoothly for invoicing and accounts receivable.
The order to cash process is not finished when the company delivers the goods and the customer pays the bill. Businesses can analyze customer feedback and the data so that in the future, they can make improvements based on this information.
In order to find chances for optimization and improvement, activity data must be collected throughout the O2C cycle and examined further before the order are completed. If the order to cash flow fails, the business did not correctly implement one of the steps. Usually, the problem occurs with invoices, bank transactions, or other credit card issues.
Why is Order to cash process important?
O2C is a crucial function that generates revenue for the company. From picking lists to order classification, from courier comparison to automatic label printing, O2C speeds up processing time and eliminates unnecessary costs. Implementing this process can increase profitability and impact the growth of the business. On the downside, a flawed process could affect various levels of the organization, most importantly – the cash flow.
Customers are more likely to give up and shop elsewhere if they cannot order a product or service from the website on the first try. This can result in customer churn and potential revenue decrease. The process is fundamental to the credibility and reputation of the company. If this service is not good, customers can even think the business is a scam. This system’s visibility can spot issues and take the appropriate action to fix them.
Order to cash benefits
- Improves Cash Flow
- Enhances Customer Experience and customer retention
- Saves money and order-to-fulfillment time for the business
- Boosts Accuracy
- Streamlines the buying process
- Minimizes the need for intervention
- Fulfills orders accurately and on time
- Avoids order and form information re-entry
- Proves the business is professional and serious
- Avoids backorders and makes sure there is enough product
- Improves data reporting and accuracy of records over time
How Order to cash works?
Even though the ordering process might be stressful for some customers, the background process for businesses is much harder than people think. The ordering process combines many steps and cooperates with many businesses, such as banks. If everything goes smoothly, the process should only include ordering from the customer’s side and processing and shipping the order from the business’s side.
Unfortunately, fixing possible errors, such as returns, wrong orders, or wrong products, can slow down the process. In such cases, the staff is focused on manual data-entry tasks, error rates increase, and order-processing time is longer. But, if everything works in a timely manner, processing orders should go as quickly as choosing a product.
Let’s say someone wants to buy something from an online website. They search for the item they need, add it to the cart, and head to “Check Out.” Once they order the product, they only need to wait for the business to deliver it.
The company begins processing its order by filling out the personal information necessary for shipping, billing, and payment.
In chronological order, the order to cash cycle should look like this:
Receive order -> Manage payment -> Fulfil order -> Ship order -> Create invoice -> Cash Management
Order to cash cycle steps
It is a procedure used by businesses to receive, monitor, and complete sales orders. It is typical practice to monitor sales, orders, inventory, and fulfillment using an order management system (OMS).
To decide what credit terms and restrictions to provide their customers, the credit management team considers and interprets a variety of data points.
Invoicing – Billing
The customer then receives an invoice after the commodity or service is delivered. The invoice must include information on the order, including the billing and shipping addresses, a description of the products or services rendered, and an itemized breakdown of the charges, including taxes and fees.
In order to help increase the efficiency of the payments process, the business must present customers with a payment online billing portal. It is then when customers can type in their payment information – card numbers and name.
Cash (collect) Application
When a business wants to apply a payment to a customer’s balance, a cash application matches incoming payments with their open invoices. Cash application happens when the revenue is finalized.
Reporting helps to reveal whether a business is collecting payments as expected or has barriers such as disputed invoices and late-paying customers. Reporting provides insight into a business’s accounts and whether the money reached them or not.
What is necessary for Order to cash process to operate?
Order processing software
Ideally, O2C should first process and collect all order and customer-related data. These software systems optimize order processing tasks, help automate manual operations, minimize human errors, improve customer experience and business performance, and increase business profitability.
Automatic machinery and racking systems
The organization of the warehouse should be as automated as possible. By implementing automation, everything moves faster and with fewer errors. In order to choose and move the products from their location in the warehouse to the hands of the operator for the packaging stage, warehouses should have automated machinery, rails, pallet trucks, shelves, and guided vehicles (AGV).
Warehouse management system (WMS)
Businesses can handle a variety of warehouse-related duties with the aid of a warehouse management system or WMS. Primarily, they work in tandem with an ERP and other software systems to optimize the order processing cycle, improving the service’s quality and lowering costs.
Enterprise resource planning (ERP) system
An ERP system streamlines business operations by giving all departments access to a central location for information gathering. ERP systems assist in keeping track of and prioritizing clients and customer information, enhancing order processing efficiency and customer satisfaction.
Documents in O2C process
Various documents are needed in the process, such as picking list, packing list, delivery note, waybill, tracking number, package tracking, and customs documents. These papers include a list of all the items that must be collected in the warehouse. They are also proof of the courier, customer, and customs delivery. Additionally, it contains numerical sequence and tracking numbers for package security. It’s essential to be able to claim loss or damage.
How to improve Order to cash process?
Every business must focus on improving O2C process because it adds to the customer experience. It helps more efficiently and faster product delivery to customers. A business must implement the right solution and software to improve the Order to cash process. It’s a fusion of process management, interdepartmental collaboration, and modern technology.
By using real and virtual technologies, a business can enhance order processing by automating, accelerating, and optimizing repetitive operations that frequently result in human mistakes. One typical approach to improving order processing is using customized equipment and order processing software.
If a business wants to improve its operations, it should:
- Automate process
- Standardized O2C processes
- Digitize the order process to improve the accuracy of order details
- Pay attention to customer information details and flag errors to minimize delays
- Keep Customer Service active 24/7
- Avoid fees increase
- Process Customer Data
Order to cash vs. Quote to cash
As previously established, order to cash refers to the steps necessary to supply the goods and services requested by customers. This process covers the entire order fulfillment lifecycle, which includes various tactics like inventory management, operations, and production.
Unlike the order to cash process, which begins when a customer makes an order, the quote-to-cash process covers a broader range of business operations. This process starts with a customer’s intention to buy from a business and ends with the receipt of revenue.
Order to cash (O2C) and quote to cash (QTC) differ primarily because O2C process excludes submitting a quote to the customer and contract negotiations. On the other hand, Quote to cash includes all contract management procedures, such as contract formation, negotiation, execution, revenue management, and recognition.
Many business processes make up the quote to cash process, which begins with price quoting and negotiations and ends with client payment and reporting. These are the first steps in the quote to cash process and are carried out before the order to cash cycle starts.
Order to Cash for Subscription Businesses
Order to cash process can serve both online and brick-and-mortar businesses. Most subscription-based businesses would not be able to operate without the order to cash process since it is the best way to process orders and deliveries on time.
The order to cash process is very popular with subscription-based or Saas businesses. Also, giants such as Amazon, AliExpress, or eBay all use this method.
A monetization software is needed for the order to cash process to function properly. That is why Tridens Monetization cloud billing software allows integrations that can help with payments, taxation, customer relationship, and the management of business processes.
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