A Step-by-Step Guide on Order to Cash Cycle and How to Improve its Management

Order to cash is one of the high-level business processes for receiving and processing client’s orders. Companies must optimize their order to cash cycle so they can maintain efficient and smooth operations. There are various processes involved in the whole order to cash cycle, and each of them impact’s a firm’s overall business model.

Technological advancements are using both B2B and B2C companies to adapt seamless transactions. Improving the company’s current order to cash process significantly impacts its revenues and growth. Having an efficient order to cash processes benefits firms as it lessens the time spent on collections.

What is the Order to Cash Process?

Order to cash pertains to the company’s entire ordering processing system. It starts from the time the client places an order. All processes prior to order placement usually are part of marketing, branding, advertising or sales functions.

Many people think that the order to cash process is already complete after the order has been placed and paid. However, several activities are occurring after these actions. It pays for companies to analyze each activity recorded during the entire order to cash cycle to help them identify the areas that require optimization.

What are the Processes Involved in Order to Cash?

As mentioned, there are different processes involved in the order to cash management, and they are listed below.

Order Management

The order to cash cycle begins as soon as the client places an order regardless of the platform used. Companies are already responsible for order management actions after confirming the purchase. Handling order management effectively means ensuring that there won’t be any delays in accepting the orders or dealing with order re-entries.

Credit Management

There usually is a credit approval management system after the customers place their order. Credit management approval systems ensure no hurdles on the client’s side at the end of the order to cash cycle. Managing credit diligently eliminates or minimizes problems that could arise as the company reaches the end of the order to cash cycle.

Order Fulfillment

The order fulfillment stage involves the checking and updating of inventory so that the company can fulfill all orders.

However, there are cases when the order has been processed, some products are either out of stock, or the service is no longer available. When this happens, companies should inform the clients immediately so the order can be cancelled to avoid problems at the billing and payment stage. Likewise, fulfilling orders timely is necessary for companies to earn the trust of their clients.

Order Shipping

After the order has been prepared, it will be passed to the carriers, who will deliver the goods to the customer. While the carriers normally handle this process, it is still the company’s job to ensure that there is proper documentation of the delivery such as proof of delivery. The Bill of Lading or BOL is another document generated at this stage of the order to cash cycle. The company must ensure that they have both documents as they can be used if there’s a dispute.

Customer Invoicing and Account Receivables

Sending invoices to clients is a crucial stage as inaccuracies and delays can snowball and result in liquidity problems for companies. Cash problems, after all, can disrupt the whole company’s operations.

Likewise, enterprises must flag outstanding invoices before they become overdue. The Accounts Receivable team must also check these invoices to find any possible errors that could delay the client’s payment. If there are errors, then the Accounts Receivable analyst must review pertinent information from the ordering system to trace the error source and send the client a revised invoice as soon as possible.

Payment Collections

Companies can put in place several processes in their payment collection. Documenting payments received within a specific time period helps in minimizing payment collection backlogs. In many cases, firms have problems when clients’ payments are not processed immediately or properly in the ordering system as the account remains in the unpaid status. This can affect the relationship between the company and the customer negatively as well as cause inaccurate cash estimates.

Payment Reporting and Data Management

After the payment has been received, it is then added to a general ledger for recording purposes. Any disputes should be resolved quickly to avoid burdening the collections department.

How to Improve Order to Cash Cycle

There are several strategies businesses can adopt to improve their order to cash cycle.

Automation

Manually tackling tasks is prone to human error. Automating tasks, on the other hand, ensures that processes will be done uniformly every single time.

For example, automating the order management system and having automated notifications are beneficial for the company as they can kick off a series of actions from various departments. Automation allows the company to keep every department involved in the loop.

Automation of invoices and payment collections allows companies to send invoices to clients quickly. Customers, in turn, will receive the digital invoice and can settle their accounts online. The system then records the payments.

Standardizing Order to Cash Process

Standardizing processes and having clear policies let businesses communicate and set expectations among all stakeholders properly. Documenting procedures is especially useful when the company has many employees and various departments. Employees will then follow the same set of instructions and guidelines for each step of the order to cash cycle. Consistency in the way each task is executed will help companies improve operational efficiency and measure performance.

Accurate Customer Information

It seems impossible to maintain accurate client information across different systems, but it’s not an excuse for companies to slack off in ensuring accurate customer data. After all, inconsistent information will create many problems, including hampered productivity and poor customer satisfaction.

Companies can’t always use the same systems for all their departments, especially when the business expands as other systems are put in place. However, some solutions have trigger functions capable of sending an automated notification or email to another team when there are changes in customer information. Other systems also have limited integration capabilities as well.

In the end, many consider the order to cash process as the financial backbone of any company. An organization’s growth is often directly correlated to the efficiency of its order to cash process. Improving the order to cash cycle is then necessary. Automating and standardizing processes and ensuring accurate customer data are just some of the strategies businesses can employ to ensure high efficiency in their order to cash cycle management.

More Resources

Asset 5

Datasheets

View and download Cforia product and solutions data sheets.

Asset 6

Whitepapers

View Cforia thought leadership and best practices content.

Asset 7

Webinars

Watch on-demand webinars that cover a variety of O2C topics.