The Order To Cash Process: A Step-By-Step Guide

14 August 2023
Every business has an order to cash process, also known as OTC or O2C. Business owners optimize this process to reduce the time it takes to collect payments, as well as increase the money available to fund operations, improving their working capital. However, most companies don’t have efficient order to cash (O2C) processes. SSON’s 2023 report found that only 6% of B2B professionals saw their O2C automation levels high in 2022. Inefficient business processes lead to delays in processing customer orders, increased errors, and cash flow problems. With that in mind, we’ll cover what the order to cash process is, its key steps, and strategies to optimize this essential business cycle. Here’s what we’ll cover:
  • What Is the Order To Cash Process?
  • Benefits of an Optimized O2C Process
  • Breaking Down Each Step in the O2C Cycle
  • How to Optimize Your Order to Cash Cycle
  • Final Thoughts: What Is the Order To Cash Process + How Do You Optimize It?

What Is the Order To Cash Process?

The order to cash process is a cycle of business activities from receiving a customer order to getting paid for the delivered goods or services. In other words, the O2C process deals with converting customer orders into cash for your company. The process includes a series of interconnected steps to fulfill customer orders, generate invoices, and ultimately receive payment. The O2C process is sometimes confused with the quote to cash (Q2C) process. However, the Q2C process begins with providing a quote to the customer based on their specific requirements. This quote includes the pricing, terms, and details of the products or services the customer is interested in. After the customer accepts the quote and places an order, the Q2C process then merges into the O2C process, where the order is received, processed, fulfilled, invoiced, and the payment is collected. In short, the Q2C process starts with providing a quote to the client, while the O2C process begins with receiving the customer’s order.

Benefits of an Optimized O2C Process

A well-optimized O2C process can improve your business’s profitability by reducing the time it takes to receive customer payments.

Improved cash flow

With an optimized O2C process, you’ll process orders efficiently and send accurate invoices at the right time to the right person so you get paid faster. This improved cash flow ensures your business has more money to pay its bills and invest in growth opportunities.

Improved operational efficiency

A streamlined O2C process automates repetitive tasks, eliminates unnecessary steps, and reduces errors. That efficiency speeds up order processing and fulfillment. As a result, your company can handle a larger volume of orders without increasing its workforce.

Reduced costs

An optimized O2C process reduces operational costs by eliminating inefficiencies. Since automation minimizes human error, you’ll spend less time fixing mistakes, addressing customer complaints, and dealing with manual inventory management issues like overstocking.

Increased customer satisfaction

An efficient O2C process helps ensure a smooth customer experience and increases satisfaction, making them more likely to become repeat buyers and brand ambassadors. Now that we covered the benefits of an efficient O2C cycle, let’s dissect the order to cash process flow.

Breaking Down Each Step in the O2C Cycle

As mentioned, the O2C cycle outlines how a company receives and fulfills customer orders to ensure smooth payment and customer satisfaction. Let’s look at how a customer purchase order evolves from the initial placement to the final payment.

1. Customer Places an Order

The O2C process starts when a customer orders a product through one of your sales channels, such as your ecommerce website, a phone call, email, or social media. At this stage, accurately capture all the necessary purchase order details, including product specifications, quantities, and delivery preferences.

2. Order Management

Received orders must be processed by verifying order details and product availability, and verifying pricing and customer discounts. An efficient order management system (OMS) will help you ensure quick and accurate data management at all steps of this process.

3. Credit Management

Before fulfilling an order, companies must assess the customer’s creditworthiness. However, you don’t want to turn customers away, so you might offer different credit terms to your B2B customers based on their creditworthiness as a way to manage risk while maintaining a good relationship. For instance, you can use k-ecommerce to create buyer-specific pricing and payment terms such as staggered payments, milestone-based billing, or other custom arrangements.

4. Order Fulfillment

Once you verify the customer’s order and approve their credit, the order is filled. Fulfillment involves coordinating warehouse staff, inventory, and order shipping processes. However, keeping inventory up to date and arranging shipping can be laborious. Automation with k-ecommerce makes shipping easy with integrated shipping tools such as shipping calculators and streamlined real-time inventory updates.

5. Customer Invoicing

After fulfilling the order, create and send an invoice with all the relevant details. The invoice details should include the products or services provided, their quantities, prices, applicable taxes, shipping charges, and the total amount due.

6. Accounts Receivable

Once the customer receives the invoice, they become a part of your company’s accounts receivable (AR). That means they owe your business money for the goods or services received. The AR team tracks the customer’s payment history and collects payments. If the customer doesn’t pay on time, the team may need to take steps to collect the money owed. This may involve sending payment reminders for outstanding invoices, making collection calls, negotiating payment terms, or addressing any disputes or discrepancies. Keep the collection process moving by using k-ecommerce‘s ERP‑integrated payment solution KIP, which automates costly AR processes and shortens account reconciliation time, improving your company’s AR collections.

7. Reporting and Analysis

Throughout the O2C process, your analytics software will gather valuable data on orders, payments, and customer behavior. You can then analyze these metrics, generate reports, and monitor key performance indicators (KPIs) to gain insights into the performance of your O2C process. That way, you’ll be able to identify bottlenecks, optimize operations, improve customer relationships, and make informed decisions to enhance the overall efficiency of your business.

How to Optimize Your Order to Cash Cycle

It’s important to optimize your order to cash cycle to enhance business efficiency, reduce overall costs, and improve cash flow.

Automate and Streamline Order Processing

Automation is a game-changer in the O2C cycle. By using order processing systems, you can automate real-time order capture, validation, and processing. This reduces manual errors, accelerates order fulfillment, and streamlines your workflow. With k-ecommerce, you can streamline your order to cash process by providing online purchasing options. Take it a step further by offering secure online invoice payments, handled by KIP, a payment solution that integrates with your ERP.

Enhance Inventory Management

Optimizing inventory management helps you reduce errors and avoid overstocking (which ties up capital) or understocking (which leads to lost sales). Our ecommerce platform syncs with your inventory in the ERP system, and verifies that each ordered product is available in sufficient stock. As a result, when a customer buys something from your online store, they’re sure you have the quantity they need.

Optimize the Fulfillment Process

Efficient order fulfillment leads to timely and accurate deliveries. Set up optimized warehouse layouts and implement efficient picking and packing processes to streamline operations. Our system supports multiple warehouses and unlimited shipping methods. You can also calculate standard shipping in real time with FedEx, USPS, Canada Post, UPS, and Purolator.

Streamline Billing and Invoicing

Manual invoicing takes time and has a higher risk of human error. For that reason, implement electronic billing and invoicing systems to accelerate invoice generation and delivery. Automated billing systems help you produce clear, accurate, and detailed invoices with transparent pricing and payment terms. As a result, you’ll create trust with customers and speed up the payment process. Digitizing your invoicing and payment system with k-ecommerce makes it more accurate and cost-effective.

Offer Customers Flexible Payment Options

Provide customers with convenient payment options such as online payments, credit cards, and mobile wallets. That will improve the ease and speed of payment, pushing the O2C process along and leading to more cash flow. Use k-ecommerce to give customers the freedom to pay their bills online with a payment portal fully integrated with Microsoft’s Dynamics 365 Business Central and Microsoft Dynamics GP. It can process both ACH and EFT transactions, and issue post-authorization transaction adjustments. Offering installment plans or short-term financing can also attract more customers and boost sales.

Improve the Payment Process

Implementing automated payment reminders and establishing self-service portals help simplify the payment process for customers and improve on-time payments. It also helps you follow up on outstanding payments using email notifications and other channels to reduce outstanding balances and accelerate cash collection. Our system enables real-time communication between your ERP and payment solution, which reduces payment turnaround time.

Monitor Customer Satisfaction

Customer satisfaction is a critical aspect of O2C optimization. Regularly collect customer feedback regarding their experience. Then, identify areas you can improve to enhance customer satisfaction. Happy customers are more likely to become loyal and refer others, resulting in long-term business growth. The k-ecommerce platform allows you to give your customers a smooth online experience that keeps them returning to your business.

Final Thoughts: What Is the Order To Cash Process + How Do You Optimize It?

A well-optimized O2C process is the backbone of efficient and successful business operations. From the initial order placement to the final payment collection, each step in the O2C cycle is crucial to increasing cash flow, ensuring customer satisfaction, and driving overall business growth. The right tools will support your efforts to streamline operations and enhance the overall customer experience. k-ecommerce integrates with ERP systems like Acumatica, Microsoft, and SAP so you can receive orders, update your inventory, invoice clients, and notify shipping in a streamlined process that executes in seconds and eliminates human error. Contact us to learn more about how we streamline your order to cash process and facilitate secure online invoice payments. lamcorper mattis, pulvinar dapibus leo.