What is Order-To-Cash?

A good order-to process can make or break a business. It will define your relationship with your customers, as well as having a huge impact on operational efficiency. Many businesses fall into the trap of focusing their resources on making the sale, and therefore miss out on the many benefits of an optimised order-to-cash process.

What does 'Order-To-Cash' mean and why does it matter?

Order-to-cash refers to the full process from when a customer places an order, to when the business receives their payment. Sometimes shortened to O2C or OTC, this process covers stages across sales, finance and customer service - linking them all together in the effort of creating a seamless transaction.

When a company gets their O2C process right, they will get paid faster, be able to track outstanding invoices efficiently and deliver a smooth experience for their customer. On the flip side of that, a slow order-to-cash process can cause cash flow headaches and generate a frustrating transaction for their customers.

In short - every business should be aiming to perfect their order-to-cash process.

What is the Order-To-Cash process

Every business is different, but most order-to-cash cycles include these stages:

1. Order management: From customer purchase intent to when they place an order via an eCommerce platform, email or phone.
2. Credit management: Your business assesses the financial risk of offering credit to your customer, and if all is okay, grants approval
3. Order fulfilment: The goods or services are prepared and delivered.
4. Accounts receivable process: Invoice creation, then sent to the customer, usually with payment terms.
5. Payment follow-up: If payment isn’t received, a dunning process and debt recovery are initiated
6. Payment collection: The customer pays via bank transfer, card or alternative methods.
7. Reconciliation: The finance team records the payment and closes the invoice
8. Reporting and data management: The business uses the data to improve how it operates

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Why is Order-To-Cash (O2C) important for your business?

For any businesses that offer credit to their customers, a robust O2C process can directly impact a number of factors throughout the business.

First of all, cash flow. If you end up having to wait a long time for your payment, it may compromise other areas of your business, and can cause hesitation when making plans for the future. A smooth, consistent order-to-cash process will lead to a smooth, consistent cash flow.

Customer satisfaction is another area that is hugely dependent on an effective O2C process. Customers want everything to be straightforward - clear invoicing, obvious payment terms - if it's all too complicated, they won't come back.

Then there's operational efficiency. If your business can process a customer purchase well, it makes everything run smoothly. It frees up your resources so that you can concentrate on growing your business, not just keeping your head above water.

If any of the stages in your O2C process break down, it will cause issues for other areas of your business, and a lot of unnecessary stress.

Order-To-Cash problems to avoid

Like with any process, there are a few common pitfalls that you will want to avoid:

• Manual processes: Using spreadsheets or disconnected systems can slow everything down
• Late payments: Without automated reminders, invoices may be forgotten or delayed
• Lack of visibility: It’s hard to track who owes what and when
• Inconsistent follow-ups: Some invoices fall through the cracks

Order-To-Cash Process - Best Practices

Now you know what to avoid, let's focus on what to do to get a really smooth process that will benefit your entire business:

• Automate invoicing and reminders: Use accounting software invoice generation as well as following up payments when you receive customer orders
• Set clear payment terms: Make sure customers know exactly when and how to pay
• Efficient inventory management: Use forecasting and inventory systems to reduce waste and ensure you are able to fulfil your orders quickly.
• Credit management: Monitor and update credit scores based on real-time data. Use this when making decisions on extending credit payment terms.
• Customer relationship management: Consider self-service portals so that they can monitor the orders themselves - this could save time fielding any questions they might have
• Offer flexible payment options: Give customers the choice to Pay Now or Pay Later
• Assign internal ownership: A credit control lead or finance team member can monitor the process
• Measure key metrics: Track DSO (Days Sales Outstanding), recovery rates and payment timelines - use this information to help you improve your processes. Where are you weak? What is taking up too much of your company's time?

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Using technology in the O2C Process

As a modern business, you don't need to manage every step of your order-to-cash process manually. Find the right tools to save you time and increase efficiency:

• ERP (Enterprise Resource Planning) systems: ERP platforms can connect sales, finance and operations so every order is tracked from start to finish. It will give you the real-time data that you need to make informed decisions to keep improving.
• CRM (Customer Relationship Management) tools: CRM tools keep all customer information in one place and help sales and finance teams stay aligned. They'll help you manage customer interactions and order management.
• Accounting software: Accounting software can automate everything from invoicing, payment reminders and payment collection. You can even set up automatic dunning processes if you don't receive timely payments.
• Payment solutions: Services like iwocaPay’s Pay Later solution give buyers flexible payment terms (30, 90, or even 12 months) while paying the seller upfront - reducing risk and improving cash flow.

A combination of these systems can make your order-to-cash cycle run smoothly. Use a CRM and ERP for order management, your accounting software can handle the invoices and iwocaPay can ensure you get paid on time.

Conclusion

Order-to-cash processes are essential to how a company performs. With the right O2C process in place, you will improve your cash flow, customer relationships, efficiency and most importantly, reduce your stress levels! If you are offering credit, by optimising each step of the process, you will save yourself an awful lot of hassle.

By introducing automation and using tools like iwocaPay, you can shorten your O2C cycle and spend less time chasing invoices, and more time growing your business.