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Things to Know About the Order-to-Cash Process

Things to Know About the Order-to-Cash Process

The order to cash cycle, usually shortened to OTC or O2C, refers to the process of receiving, processing, handling, and concluding orders placed by customers.

This means, managing every aspect of the sale, including shipping, payment collection, invoice creation, and updating of each phase throughout the process.

The OTC process affects not only your profitability but also your customer relationships, and hence, it is essential that you optimize it properly.

Unfortunately, most businesses focus their resources and efforts on the activities leading up to order placement by the customer and fail to optimize the order to cash process.

However, the companies that do realize the importance of this and optimize the OTC, are able to enjoy significant benefits throughout the organizations.

With the right integrated solution like Tranquil Cloud ERP , you can radically improve the functions involved in the order to cash process.

The entire process can be streamlined end-to-end, delivering quicker, more effective customer service, minimizing errors and delays, and making sure that the performance data has the highest impact on the business.

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Order to Cash in Detail

It is actually the entire order processing system of a company which begins exactly when a customer places an order; everything that happens prior to that is branding, marketing, sales, etc.

Not that these functions come to an end with receipt of a customer’s order, but the main activities lie in the customer relationship phase before the order to cash cycle starts.

The order to cash cycle doesn’t end with the order being paid for – there is activity data that is recorded through the cycle that has to be analyzed to help management recognize areas to be enhanced or optimized.

O2C impacts all operations like supply chain, inventory, and labor management; so, without optimization, there could be hurdles in any one area which can have a ripple effect and cause major problems.

The invoices and accounts receivables functions of OTC define the cash inflows for the business, collection delays can complicate matters, affecting liquidity and leading to delays in procurement, accounts payables, and payroll.

When you have a robust OTC process, it demonstrates that you’re not a fly-by-night operator and that you excel at every business function, from manufacturing to sales to fulfillment and more.

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Why Is the Order to Cash Process Important?

Why Is the Order to Cash Process Important

We have seen that order to cash impacts customer retention and interaction, revenues, and business growth.

Let’s see some specifics that explain this:

  • It helps in streamlining the purchase process for customers
  • It brings down the time required for order fulfillment
  • There is a reduced need for the customer support executive to intervene
  • It facilitates accurate order fulfillment when they are placed the first time itself
  • It facilitates fulfilment of orders in time
  • You can collect account receivables quickly from your customers
  • Eliminate re-entering orders and forms
  • Demonstrate your professionalism to customers
  • Ensure product availability and avoid taking backorders
  • Gradually enhance record accuracy and reporting on data

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Technology Facilitates the Process at Every Level

This is something to remember; in every step of order to process that we will discuss below, technology can be used to improve that particular function.

Interconnected systems and innovative technology can help all stakeholders to gain access to accurate information in real-time.

You can incorporate automation digital invoicing and shipping management etc.

To get optimal results from O2C, you need the right combination of process management, tech, and collaboration between departments.

Steps in the Order-to-Cash Process

Let’s now take a look at the steps in the Order-to-Cash process:

1. Order Management

This is the very first step and starts immediately when the customer places an order either through your website, telling your sales exec in person, your eCommerce platform, or via an email.

By automating your order management system, notifications will be instantly sent, triggering a sequence of steps in other departments so that they are ready to handle the order.

You can ensure that new orders are properly organized and the relevant persons are notified immediately so that the order is fulfilled correctly and in time.

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2. Credit Management

Credit Management

By being diligent about credit management, you can avoid problems that could happen as you approach the end of the process.

In cases where credit is being provided, customers placing orders for the first time must be put through a credit approval process.

With software automation, you can simplify the process of approval or denials, and if you feel a particular customer needs to be vetted more thoroughly, you can alert the finance department.

If they are repeat customers with proper approval for credit, they can be sent straight to the fulfilment stage.

However, if the returning customers are those who were denied credit for a previous order, they must be handled like new customers.

With automated credit management, this entire process becomes easy and seamless, with strategic credit guidelines making sure that credit is only issued to worthy customers.

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3. Order Fulfillment

Inventory management software like Tranquil plays a vital role in the order fulfillment process.

It updates inventory counts on the sales side as and when they happen so that you will not accept orders for products that are no longer in stock.

In the event this does happen, the system will flag it immediately, helping you to notify the customer and prevent billing from happening.

Canceling the order in time can save you embarrassment.

Orders sent for fulfilment must be standardized and in digital format so that the team member who starts to work on fulfilling the order can understand all the important details.

Legacy software programs and paper orders where data sharing is problematic can cause errors, hurdles in fulfilment, and eventually unnecessary expenses.

ALSO READ: Inventory Management Problems and Solutions

4. Order Shipping

The logistics determine how successful the shipping of your orders is.

This is why it is critical that your shipping function must be audited on a regular basis, to make sure that it fulfils the standards of performance that are expected.

You must immediately update data from order and fulfilment management so that the shipping team can make the appropriate shipment plans after considering the pickup schedules of the carriers, and ensure that customers get orders in time.

ALSO READ: Ways to Reduce Customer Lead Time in Inventory

5. Customer Invoicing

Customer Invoicing

Delays and errors in invoicing can have a domino effect, leading to problems with cashflow, and eventually disrupting the whole business – this holds true for everything related to accounts receivables and credit management.

When you send out invoices accurately, based on a proper timetable, your finance personnel will be able to forecast cash inflows more accurately and plan the business expenses based on that.

It is imperative that the invoicing system gets precise information from employees who supervise the front-line activities.

For invoices to be automated and sent off with accurate information and on time, you need to enter data points like order date, details of the order, cost, terms of credit, shipping data, and so on, in the invoicing system.

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6. Accounts Receivable

Outstanding invoices must be flagged by the accounting software at pre-decided intervals so that you can prevent them from becoming overdue.

Your accountants in charge of accounts receivables must review the invoices to check for obvious mistakes that could result in payment getting delayed.

Like, say, an unpaid invoice with 30 days credit term must be flagged after 15 days, which in turn triggers an automated reminder for payment along with an invoice review.

Whenever an error is identified, the accounts receivables team needs to be able to review the information quickly from the ordering system to find out where exactly the lapse or issue in the data has taken place so that they can send out a fresh, revised invoice as soon as possible.

ALSO READ: Benefits of ERP in Accounting and Financial Management

7. Payment Collections

Payment Collections

One of the first things to do to protect your business from backlogs in collecting accounts receivables is to have staff document the payments received within a specified period.

Businesses usually have problems when customers have made payments, but they have not been entered into the system and therefore the accounts continue to display as unpaid.

Now this situation can create unpleasantness and make the customer indignant, as they may feel they are being asked for payment which they have already made.

It can also cause erroneous estimates of cash, leading to the finance department making inaccurate forecasts of high deficits in cash.

ALSO READ: Why Do Businesses Need Purchase Requisitions?

When an invoice does lapse and becomes overdue, you must flag the customer’s account and put their credit on hold.

When they attempt to place another order, the system must alert the customer that the payment must be made first, and only then will the order be accepted.

The accounts receivables team must contact customers with overdue invoices straight away, and inform them of the procedures for collecting the overdue amounts, and the potential penalties that will be imposed on them if this continues the next time.

The finance and accounts departments should review every overdue account frequently so that the bad debt forecast can be updated and accurate, and they can decide on the next steps to be taken.

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8. Reporting and Data Management

Integrated software systems are able to track a range of performance metrics through all stages of the order to cash process.

The management can track and analyze this data to see how the general O2c process flow impacts everything else in the business, like customer relationships, sales cycles, and their length, customer service activities, onboarding, etc.

Managers can also leverage these data points to establish if bottlenecks in one specific area negatively affected other functions of OTC.

As the entire process is very codependent, even minor inefficiencies in any one activity can intensify into expensive issues in another function or stage.

ALSO READ: Benefits of Sales Management Software 

To Sum Up,

By successfully handling and optimizing the OTC cycle, companies can become more efficient, delivering greater value to their customers, as well as receive payment in time for their offerings.

The right technology can help companies significantly improve their order to cash process, and free up their resources, allowing employees to focus on value-adding tasks like delivering an engaging and exciting buyer experience to their customers.

ALSO READ: Accounting Trends for 2023

Tranquil Cloud ERP is the ideal solution that can automate all the steps in the order to cash process and help you deliver exemplary customer service while enhancing your bottom line and accelerating your path to business growth. If you’re not sure of how exactly this works, do schedule a FREE demo of our software. We will walk you through the system and our representatives will be on hand to answer all queries.


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