Order-to-Cash

What Is Order-to-Cash (O2C)?

Order to cash definition refers to the end-to-end process that an organization undergoes from when a customer places an order, right till the receipt and accounting of its payment.

An effective O2C process in finance ensures a healthy cash flow management and efficient supply chain and inventory operations.

What happens during the order-to-cash (O2C) cycle?

The order to cash cycle is an end-to-end workflow that encompasses the different stages of order management — from the time the order is placed till payment is received.

Understanding the order-to-cash process is critical for efficient financial planning and analysis, as it impacts the areas of cash flow and revenue recognition.

What are the core components of the order-to-cash (O2C) process?

The order-to-cash cycle comprises the following steps:

• Registering of order in the order management system
• Credit check of the customer, if credit has to be extended
• Fulfilment and shipment of the order according to specification, and simultaneous updating of the inventory (in case of physical goods)
• Invoice generation to initiate the payment process in the AR system
• Payment collection

What is the business impact of order-to-cash performance?

A well-designed order-to-cash workflow delivers positive outcomes in the areas of customer experience, operational efficiency and cash flow.

Timely order fulfilment and accurate invoicing enhance the customer experience. On-time issuance of invoices and collection of payments improve the cash conversion cycle — thereby allowing organizations to meet their financial obligations. Plus, continuous order-to-cash optimization can eliminate manual errors, improve accuracy, and enhance overall operational efficiency.

What signs say that an order-to-cash process needs improvement?

Order-to-cash challenges arise due to inadequate data management, siloed systems and technology obsolescence. Some of the key signs that indicate the need for O2C process improvement include:

• High DSO and increasing bad debts on account of an inefficient AR system
• Increasing customer dissatisfaction with the order cycle
• Inadequate ability of existing systems to achieve personalization for customers
• Locking up of sales executives’ time in AR activities
• Misapplied payments

What is the role of automation in modern order-to-cash(O2C)?

Modern order-to-cash solutions use AI-powered automation to unify real-time data validation, intelligent workflows, and predictive analytics.

Such order-to-cash automation results in minimized errors, accelerated order fulfilment, accurate and speedy processing of high order volumes, and seamless integration of sales, fulfillment, and invoicing.

Order-to-cash vs procure-to-pay — what are the differences?

The O2C vs P2P difference is as follows:

• Order-to-cash refers to the end-to-end process that commences from when a customer places an order on an organization, to its fulfilment and finally to the receipt and processing of the payment for the order.
• Procure-to-pay covers an organization’s procurement cycle in its entirety — from requisitioning of goods/services, sourcing, ordering, receiving, payment and inventory management.

What are some best practices to improve order-to-cash performance?

Some important best practices to improve O2C performance include:

• Leveraging AI, automation and analytics through the right O2C solutions, tools and platforms
• Continuous communication with customers across the entire O2C lifecycle
• Regular reviews for continuous improvement of the O2C process