Order to cash: The definitive guide to a complex process


6 min read

Imagine this:

It's the holiday season. Your significant other has a single present on their wishlist. So, being the good partner that you are, you order it for them.

A day goes by. You haven't heard anything from the company you ordered from. No thank you email, no confirmation, no note about package tracking.

Another day goes by. Nothing.

So, you email them. Their response?

They made a mistake. They don't have any more of your selected items in stock. They're sorry and hope you understand, yada yada yada.

What's happened here is a failure of the company's order-to-cash process (more on this in a moment): Something (or someone) in supply chain management didn't trigger an update in inventory to reflect the product's sold-out status on the website you ordered from.

Now, that company's made a big order management blunder and accepted payment for a product they can't provide, and, not to mention, they've got one very pissed off customer. Those are major issues that no company ever wants to have.

Most times, in one way or another, these issues can be tied back to a shortcoming in an organization's order-to-cash process.

But what is this order to cash thing, anyway?

It's complicated. So, let's dive in.

What is the order-to-cash process?

The order-to-cash (O2C or OTC for short) process is arguably the most important one in every business. It represents the multitude of actions that take place from the moment a customer hits the "buy" button to the moment the vendor receives payment.

It's the way order management interacts with credit management, the way order fulfillment interacts with shipping, the way customer invoicing interacts with accounts receivable and payment collections, and, ultimately, the way each of those link together and interact with each other.

If these little interactions occur properly and predictably, then you have yourself a highly functioning bigger interaction known as the O2C process.

But if they don't—if there's a missing link somewhere along the chain—well, then...you're in trouble.

Without a well-integrated, consistent, and in most cases, largely automated O2C process, your company is going to suffer.

In the simplest sense, you can think of the O2C cycle as the heart of a company:

  • It impacts everything, and everything impacts it
  • It's complex with many different parts involved
  • It works in the "background," but its effect is observable in all areas of a business
  • If it's working well, chances are everything else is, too
  • If it stops working, so does everything else

It's an intricate process that requires nearly every function of an organization to work together. For an O2C process to operate like a well-oiled machine—or a healthy heart—a company's teams need to work together seamlessly, and there needs to be a combination of the following in place:

  • Proper technological infrastructure
  • Reliable automation capabilities
  • Efficient human communication and collaboration
  • Top-notch process management

The O2C process impacts all areas of a business

Ensuring your O2C process is up to snuff is a non-negotiable for companies who want to survive—and thrive—for the long term.

As mentioned before, order to cash has a ripple effect on nearly every other area of the business, from order management and supply chain management to order fulfillment and cash flow, to software provisioning and customer support. Regardless of business type or industry, a wrinkle in one of these areas will have a cascading effect on everything else, which, as you can imagine, could be disastrous.

One of the most prominent of these areas:

Invoicing and accounts receivable.

Hangups and delays with the sales orders outstanding and payment processes have major implications on cash flow, accounts payable, and payroll of an organization. And if your company is in the process of a major investment or an M&A deal, then the last thing you want to deal with is a liquidity concern.

But of all the advantages a company with a sound O2C process has over its competition, one of the biggest ones is confidence.

Yes, it might sound silly, but knowing your team and tech can handle the entire order-to-cash process from start-to-finish without any hiccups allows you to approach everything else with an added layer of security and mojo. When you're confident in your O2C process, you can be confident in your sales, marketing, and customer support. And that goes a long, long way in any business—B2B, B2C, e-commerce, retail, manufacturing, software, etc.

Using technology to manage and facilitate the O2C process

With any intricate and interconnected system, technology is going to play a vital role.

This is more true in order to cash than perhaps any other business process.

In addition to its impact on inventory, working capital, and customer experience, the O2C process requires a multitude of people in different departments to have access to the same information at the same time. So, as a result, the technology used is of critical importance. It used to take a bevy of innovative tech solutions to successfully automate, track, communicate, and facilitate all of the complex actions in the process, but today, modern O2C software offers all-in-one solutions for even more accuracy, speed, and compliance.

Put simply: tech makes O2C possible—every step of the way.

The different steps of the order to cash process

Remember that faulty order-to-cash process from the beginning of the article—the one that caused you to run around frantically to get a gift for your significant other in time for the holidays?

Well, we know what shouldn’t have happened in that scenario.

Now, let’s look at what should have happened.

To do so, we’re going to break down all the different steps of the O2C cycle and why each needs to function well for you to have a smooth, predictable, and repeatable order-to-cash process.

Order management

A customer places an order. Boom. Just like that, you're flush—making money like it's no big deal.

Not so fast.

Instead, it's time for the first step in the O2C process to kick into gear: order management.

First, your order management software should identify whether a customer is new or returning and whether or not they're in solid credit standing. This way, they can either be passed through to fulfillment or to a credit approval process.

As soon as a purchase is confirmed, your order management software should then automatically alert the necessary business departments so that they can fulfill their duties and ensure the order is reflected in the necessary places.

Credit management

As alluded to before—returning customers with solid credit standing should be passed through to fulfillment.

However, for any new customer or returning customer who's been denied credit, your credit management software should automatically put them through a credit approval process, which should be automated and capable of quickly approving or denying one's credit.

Trust us, your accounts receivable team will thank you for having an automated and reliable credit management system in place.

Order fulfillment

At this point, the product or service your customer ordered should be ready to ship (or be provided).

As you might imagine, here's where rock-solid, automated inventory management is key. Because if your inventory management isn't quite accurate, your customer might end up in the same dilemma you were in at the beginning of this article. And if that does happen—where a customer orders an out-of-stock product—then you need to notify the customer and cancel the order immediately. Otherwise, it'll be too late and you're going to have a big old headache with billing.

And we all know that nobody has got time for that.

Also of note: in the best order-to-cash processes, the order fulfillment software is linked with the ordering software, which helps your warehouse team quickly and easily find ordered products to prep them for shipping. Connecting your inventory, order processing and commerce data & systems also allows for great customer experiences, like enabling customers to see and purchase back-ordered items.

Order shipping

Most companies aren't Amazon. In fact, only Amazon is Amazon. So, most companies rely on third-party carrier services to ship their orders. That's what happens at this stage.

After the goods are shipped, your O2C team receives a proof of delivery document and a bill of lading from the carrier. The former includes a list of the products you shipped and their quantity, while the latter is a list of the cargo that the carrier gives to the person consigning the goods.

Customer invoicing

Within a certain amount of time post-order, your invoicing tool should automatically generate and deliver an accurate invoice to your customers.

This sounds easy, but your automated invoicing software needs to consider a number of different things, including but not limited to:

  • invoice format
  • mode of delivery
  • approval process
  • necessary documentation
  • appropriate recipient

Just as in the shipping process, a human eye should regularly monitor your invoicing to ensure errors are few and very far between.

Accounts receivable

After the purchased product or service is shipped/provided, it's time for the accounts receivable process to take charge.

At a broad scale, this involves the creation and delivery of invoices, as well as the tracking and reconciliation of payments from customers. The best accounts receivable teams and software tools will automatically alert customers with payment reminders and due dates if payment hasn't been received for a period of time.

Accounts receivable is often managing a multitude of payment processing options and systems for anything from Credit Card payments, to wires, checks, and ACH.

When any errors, day sales outstanding miscalculations, or missed payments arise during the accounts receivable phase of the order-to-cash process, it's imperative that the people on your accounts receivable team take action immediately. Any error or delay in receiving payment could negatively impact your working capital and, as a result, have implications on any accounts payable, too.

Payment collections

The payment collections team and software are in place to quite literally collect payment that comes in from outstanding invoices, often measured in days sales outstanding. Unsurprisingly, this is another critical stage of the O2C process, and doubly so for companies that fulfill orders on credit.

As previously mentioned, any delay in payment must be noted immediately. This way, if the unpaid invoice remains as such, you can pause the line of credit you afforded your customer. Also, make sure you're diligent about keeping tabs on payment collections to keep your debt forecasts accurate.

Reporting and data management

These days, there's software to track and analyze just about every business process. This is no different for order to cash.

With an interconnected software program, you can monitor and report on all different kinds of performance data throughout the O2C process. This data often proves valuable in identifying bottlenecks, opportunities, and areas for improvement. It exposes the areas in which your O2C process shines and areas in which it comes up short, and can prove extremely valuable in doing what we'll talk about in the next section:

Optimizing your O2C process for scale.

How optimizing your O2C process can grow your business

One immensely important reason for having accurate performance data on every stage of your O2C process:

It helps you gain insight as to how one stage affects another.

And, over time, data like this could lead to breakthrough ideas and help you optimize your order-to-cash process and, ultimately, help you improve customer experience.

But enhancing your O2C process with the right tech and reliable automation does more than improve your customer experience. It can also lead to:

  • Shorter (and more predictable) sales cycles
  • Faster payment collections
  • Improved cash flow
  • Better customer service
  • Substantial revenue growth
  • And much, much more

Improvements in one—let alone *all—*of these areas results in that magical six-letter word everybody in business loves so much:


But how, exactly?

Let's talk about it.

Using order to cash data to drive revenue growth

Your current customers are your best customers.

Who knows who said it first, but that person definitely knew what they were talking about.

And nothing, besides maybe customer service or having a true "brand community," can drive growth within your current customer base quite like an optimized O2C process can.

The thing is, knowing the data at each stage of the process helps inform you about what improvements need to be made. It'll tell you if you need to improve your order management, invoicing, fulfillment—you name it. And because everything in O2C is so interconnected, an improvement in one area will result in an improvement in all areas.

The result?

A better complete customer experience, which will keep customers coming back for more and inspire them to tell their friends, family, and colleagues about you.

And at that point, you'd better hope your O2C process is just about perfect, because you're about to get very busy—and the last thing you need is a crazed, angry customer posting detrimental reviews online and harassing your customer service team because the gift they ordered never showed up.

Now that’s a fate we’d all like to avoid, isn’t it?

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