What is Order to Cash?

Also known as OTC or O2C, order to cash is the process from the order until a payment is recognized. It is the moment in which the customer action goes beyond the marketing and sales stage and enters the entire order processing system.

Key Steps in the Order to Cash Process

There are six key steps in the order to cash cycle:

Receive order. The customer places an order and the business manages the order through its order management system. Whether the order is through a website or a sales representative, its management must be automated to ensure it goes through the proper process and different departments efficiently.

Credit management. Customers undergo a credit approval process. Ideally, credit management should also be automated, with a built-in system for quickly identifying the creditworthiness of customers, setting appropriate credit limits and passing the information on for human involvement if necessary.

Fulfill order and ship it. This step includes inventory management so that customers cannot order products that are no longer in stock and the business isn’t tying up its resources with unnecessary inventory. Inventory and fulfillment details must be regularly updated to ensure the product is shipped to the customer on time.

Invoice customer payment. Businesses should have an invoicing and payment process that encourages customers to pay in a timely manner. This part of the O2C process is managed by accounts receivables teams, who can take a proactive approach by optimizing different parts of the process such as invoice distribution, dunning workflows and payment reminders by turning to an autonomous invoice-to-cash solution.

Collect customer payment. This component specifically addresses customers with unpaid or overdue invoices. The business must have a process in place that clearly communicates to customers the penalties for late payments and manages bad debt while maintaining customer relationships.

Account reconciliation and generating reports. Payments must be reconciled to ensure accurate reporting. Data must be tracked at all stages and updated continuously so that businesses can use it to make data-driven decisions. These could include decisions such as identifying consumer trends and adjusting inventory in response or detecting payment bottlenecks and proactively addressing issues before they impact your cash flow.

Common Challenges in the Order to Cash Business Process

Problems in your order to cash process flow can impact other aspects of your business, such as inventory, the length of your sales process, and procurement. Similarly, inefficiencies in other aspects of your business, such as operational disruptions, also impact your O2C.

Major O2C challenges include:

Inefficient accounts receivables and invoicing processes. Reliance on manual processes in the complex B2B invoicing process contributes to human error and slow billing processes and make it nearly impossible to scale. In addition, the inability to personalize the dunning process according to different customer preferences, industries and risk is also inefficient for many A/R teams. This contributes to increasing numbers of unhappy customers and lost revenue over time.

Insufficient use of technology. Since the order to cash business process is affected by any inefficiencies in your business, automating complex processes to improve speed and accuracy can help improve it significantly. For example, it can offer customers a wider range of payment options, update data in real time, and integrate with existing financial tools such as your CRM, ERP and accounting software.

Delays in collection. The lack of automation and inefficient processes mean that information is missing from invoices, or the invoice is missing altogether, credit is not properly managed, and miscommunication between customers and organization is common. For example, reminder notices may not be sent and dispute management may be complex and time consuming. As a result, order fulfillment and shipping processing times may be slow.
Access to a limited set of data. It’s essential for A/R teams to monitor KPIs such as days sales outstanding, accounts receivable aging, and billing and invoice cycle times to identify any bottlenecks as early as possible to develop a proactive rather than reactive approach to cash flow issues. It also makes it possible for the organization to improve A/R performance based on data-driven decisions.

Best Practices for Optimizing the Order to Cash Cycle

When optimized effectively, the order to cash cycle delivers many benefits, including a streamlined purchasing and order process for customers, reduced fulfillment time, fewer customer disputes, and purchase and order capabilities round the clock.

How Gaviti Enhances the Order to Cash Process?

Although many businesses turn to order to cash software to automate their O2C process, it’s often only after the invoice is issued that things go wrong.

With Gaviti’s autonomous invoice-to-cash solution that optimizes the entire A/R process, from invoicing to credit management and monitoring, cash application and disputes and deductions, you’ll be able to ensure a quicker and smoother order-to-cash process as well. Customers have used the platform to decrease their DSO up to 55% and the number of overdue invoices by up to 60%.

With Gaviti you can also:

Onboard new clients faster by managing risk and credit threshold with quick and easy credit reviews that de-riskify decision making.
Get easy personalization with AI-powered email and workflow building that relies on proven strategies.
Continuous improvement of A/R performance with a data-driven approach from an AI autonomous process that loops in people as needed.

Resolve disputes in under an hour with full customizable workflows for routing and tracking and the ability to detect trends and reduce future disputes.