What is the Order to Cash Process and Why Should You Streamline Yours?
What is Order to Cash Process?
The order to cash process, also known as O2C or OTC, is how your business receives and processes customer orders. It’s made up of six steps that span the time between when your customer places an order and the time their money appears on your company’s ledger. Each step must be expertly navigated to fortify your cash flow and capital.
The 6 Critical Steps in the Order to Cash Process
The customer order is processed (order management)
The order to cash process kicks into gear when a customer places an order through their channel of choice. Any practical, automated order management system will notify the right person or team immediately to ensure rapid fulfillment.
The order is fulfilled (order fulfillment)
Orders sent to the warehouse for fulfillment should arrive in a digital format that pickers can easily digest. They should provide precise information regarding where goods are located and how shipments have to be prepared.
Your inventory management software should know how much stock you have on hand at any one time (barcodes scanned on pallets and cartons track goods as they enter and exit your warehouse.) When stock levels fall below a certain threshold, the software should automatically order more stock from suppliers or the raw materials required to manufacture it.
Keeping a close eye on stock levels avoids billing disputes and is vital for driving customer satisfaction and loyalty. There’s nothing more annoying from a customer’s perspective than being told at the 11th hour that much-needed stock they’ve paid for doesn’t actually exist!
The order is shipped, or service performed (order shipping)
Customers are automatically sent an email with full tracking information as soon as an order is marked as shipped on the internal system’s backend. Shipping is a common source of headaches for buyers and sellers alike, so frequent auditing and optimization of shipping processes is a must.
An invoice is created and sent to the customer (customer invoicing)
Good-looking, properly branded invoices are generated and sent to customers with a single click, saving time and eliminating the human error inherent in manual formatting and number-crunching. The invoicing system needs to be fed all the relevant customer, product, pricing, shipping information, and any customer-specific terms to ensure accuracy.
The customer sends the payment (accounts receivable)
Payments received are recorded automatically to ensure cash flow projections are reliable and customers aren’t hassled for a payment they’ve already made. Overdue invoices are flagged and customers informed, ideally before credit has to be suspended.
Data is recorded (reporting and data management)
Interconnected software systems monitor performance and provide process analysis to pinpoint areas of order to cash improvement. The aim: shorter sales cycles, fewer bottlenecks, and more satisfied customers.
10 Crucial Benefits of Streamlinging Your Order to Cash Process Flow
Duplicate orders; shipping delays; delivery of incorrect goods; failure to collect payment or invoicing twice; disparities between stock levels on the system and in the warehouse; credit notes piling up; disgruntled customers leaving in droves–these are all signs of an order to cash flow process on its knees.
Stripping out manual processes and replacing legacy software with automated, interconnected, data-driven solutions provides a raft of benefits, 10 of which are listed below:
The need for manual input is reduced, which saves employees time. They can focus on more creative, strategic, revenue-generating activities rather than repetitive, menial, and easily replicable gruntwork.
Human error is reduced through automation, which means fewer delays and disputes, less rework, improved customer satisfaction, and less pressure on an already-stressed-out customer support team.
A slick, streamlined end-to-end order to cash process shortens sales cycles and gets more customers moving through the sales pipeline.
Customers receive their orders faster, free from picking and packing mistakes, enabling them to meet their own customers' needs and come back to you for more stock more quickly.
Accurate inventory monitoring means stock levels can be kept at an optimal level, reducing out-of-stock periods and unsold goods.
A fully digitized and automated order to cash process means buyers can self-serve through B2B eCommerce rather than interacting with sales reps. Self-serve has always been the purchase method of choice for digital-native Millennials who are starting to dominate buying roles within prominent organizations. And then, of course, there’s COVID-19 and all the social distancing that entails.
Providing a slick customer journey enhances your brand’s reputation and your goods' perceived value. B2B customers will always pay more for a smooth, reliable, time-saving buying experience.
Companies that get their order to cash processes under control can improve cash flow forecasting, budgeting, and planning, to support long-term growth and profitability.
Gathering and analyzing a large volume of customer data enables process and product optimization and rapid decision-making. Customers can be accurately segmented and received a personalized sales and marketing experience.
Getting rid of silos democratizes data. Collaboration, information-sharing, cohesion, efficiency, and profitability skyrocket, as does employee morale!
A High-Level Overview of the SAP Order to Cash Process
Without wanting to get too technical, the SAP order to cash process can be divided into four main stages–Pre-Sales Activities, Order Processing, Shipping, and Billing–which are themselves subdivided into various documents (identified below by “doc”) and actions. A flexible and customizable solution, SAP allows users to bypass or reorder many of these steps according to their unique business needs.
Pre-Sales Activities comprise inquiries from potential customers (doc), quotes (doc), contracts (doc), and scheduling agreements (doc). This information can be automatically copied over to sales orders in the next stage, without the need for time-sapping data re-entry.
Order Processing formalizes and captures customers' requests in a sales order (doc), which includes information regarding the goods or services to be provided, as well as pricing, delivery, shipping, and billing information. Once Order Processing is complete, the customer is committed to buying, and the seller is committed to selling.
Next comes Shipping, and the critical document at this stage is the outbound delivery (doc), which includes picking and packing information and any shipping and posting data/documents required to enable dispatch of goods from the warehouse.
The final stage in the SAP order to cash process is Billing. The billing document (doc) forms the basis of generating invoices and credit or debit memos and can be integrated with SAP FI (financial accounting) for automatic posting to general ledger accounts.
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