Order to cash, or O2C, refers to the entire process a customer goes through between placing an order and paying the corresponding invoice. The order-to-cash process therefore includes all the interactions a company may have with its customer. So, since the customer cycle affects all parts of the company, the order-to-cash process involves all the company’s players. As a result, the order-to-cash cycle has both quality and financial implications. It has a direct impact on sales and cash flow. We share with you everything you need to know about the order-to-cash cycle and its key components.
The Order to Cash process
To fully understand the concept of order to cash, you need to be familiar with all the stages of the process. The main stages of the order-to-cash process are :
- receipt of the customer’s order, i.e. the company’s acceptance of the request;
- order processing, which may include opening a customer account for new customers, and issuing quotations if required. In addition to the quotation, a contract can be signed;
- order preparation by the logistics department, for example ;
- shipment of the order ;
- customer billing ;
- Invoice payment follow-up, which may include debt collection in the event of customer default;
- closing the order.
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Sales prospecting is not included in the order-to-cash process. In fact, sales actions carried out before the order is placed are not taken into account. However, this does not mean that sales representatives are not part of the process. On the contrary, they are usually involved at the order processing stage, and may even monitor customer relations throughout the entire process. These steps show that the customer lifecycle, and consequently the order-to-cash lifecycle, involves various departments within the company. The various business processes must therefore be included in the company’s order-to-cash process. Involving all the different players in the process optimizes the order-to-cash cycle, making it smooth and pleasant for the customer. Several actions can be taken to improve the order-to-cash process, such as managing lead times and digitizing the order-to-cash process.
Order to Cash deadline management
Whether it’s to improve customer satisfaction or increase productivity within the company, managing lead times is an essential aspect of order-to-cash. The company’s objective is to reduce lead times as much as possible within the customer lifecycle. To achieve this, order processing times need to be analyzed:
- Can they be improved to handle customer orders more quickly?
- Are there unnecessary tasks that need to be eliminated, or are there new habits that need to be put in place?
- Should we hire?
- Should you invest in more efficient equipment?
This investigative work makes order processing smoother. The same can be done for order dispatch.
Indeed, if order processing is faster, the team in charge of dispatch or delivery must be able to cope with a faster pace. Otherwise, order-to-cash optimization will only be partial. Finally, the invoicing stage must not be overlooked when it comes to reducing order-to-cash lead times. In fact, it’s essential to send invoices quickly in order to reduce payment times. The sooner the invoice is issued, the sooner it will be paid. However, it is important to ensure that invoices are sufficiently clear and precise, to avoid any questions from the customer, or even a dispute that could lead to late payment. Good management of order-to-cash deadlines is therefore essential. On the one hand, it increases customer satisfaction, as they can be delivered more quickly, and on the other, it reduces the time between ordering and invoicing. As a result, by shortening the customer cycle, the company brings in money faster.
Order to Cash tools and systems
Since the order-to-cash cycle comprises a variety of stages, and multiple business processes, several systems are involved in its optimization. The use of tools, and in particular software, is essential for efficient management:
- order management ;
- inventory management ;
- invoice management ;
- payment tracking.
For example, inventory management software ensures that you always have sufficient quantities of the goods you need to meet customer requirements. It also facilitates stock-taking, since it’s easier to keep accurate inventories. In addition, inventory management helps to control the company’s supplier debts, and therefore to manage outgoing cash flows.
Similarly, collection software linked to invoicing software automates the collection process. As soon as a late payment is identified, the collection software triggers a scenario that includes an initial reminder by e-mail or post, based on a template validated by the company. This considerably reduces processing times, and ensures faster payment. Teams, meanwhile, can devote their time and effort to the more complex cases requiring their intervention.
By way of example, CashOnTime is a comprehensive solution from DIMO Software that structures receivables management from automated payment processing to debt collection. Credit management, collection, litigation and lettering solutions are at the heart of this collection software. As a result, having clear processes and appropriate tools not only increases productivity, but also reliability. It also has the advantage of reducing costs. As a result, the company is able to offer a very good customer experience, which avoids unpaid invoices due to disputes and encourages the taking of new orders..
The benefits of Order to Cash
Paying close attention to order-to-cash has a number of advantages for the company. Firstly, optimizing order-to-cash improves customer satisfaction. Smooth, fast processes play a key role in customer satisfaction. And a satisfied customer is one who is likely to order again, or even recommend the company to others.
This benefits the company both financially and in terms of brand image. In addition, ensuring an optimal order-to-cash process reduces the risk of fraud and error. Whether it’s receiving or processing orders, or invoicing, mistakes can happen. Thanks to order-to-cash solutions and processes, you can significantly reduce this risk. Good order-to-cash management also has very positive consequences for your company’s cash flow. On the one hand, controlling inventories helps to manage outflows (supplier debts), and on the other, managing customer risk and debt collection (customer receivables) helps to reduce payment times and get invoices paid. In this way, incoming flows are also kept under control. This optimizes the company’s working capital and reduces its WCR. Finally, order-to-cash enables the CFO and company management to make informed decisions based on the data provided by order-to-cash.
Conclusion
Order to Cash is an essential process in the management of commercial activities. Implementing the right systems and tools at each stage of the order-to-cash process helps to reduce lead times, and thus the customer cycle. This not only increases efficiency and customer satisfaction, but also facilitates the company’s cash management.
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