What is Order to Cash Process (OTC)?

“When money realizes that it is in good hands, it wants to stay and multiply in those hands.”

― Idowu Koyenikan

 

Maintaining a balance between the long term debts and daily cash management are two very essential things. Every business tries to maintain its cash flows in order to keep a healthy working capital cycle. No one wants to face a short term cash crisis. Days Sales Outstanding in short called DSO helps to improve the cash flows.

 

Right from receiving an order till its fulfillment cash is required. Order to Cash is a process that is done to ensure that this cash requirement is managed effectively at all the stages. 

 

Obviously this cycle is long and manual intervention can lead to inefficiencies and errors but automating this cycle can give better results. In this blog we will focus on the O2C process and find out if automating it will give better results or not.

 

 

What is Order to Cash Process?

 

Order to cash also called O2C or OTC is a process of complete ordering system in a business. There is a set process from sales to payment by customer that is complete each time an order is placed. This process is very much important for companies as it helps to strengthen customer relationships.

 

Manually performing this process can lead to erroneous results but with the help of automation we can perform it better. Finding faults and inefficiencies in this system is essential because it impacts sales, supply chain systems and even the customer relations. Eradicating all possible errors is therefore important.

 

Also Read | Initial Public Offering (IPO)

 

How can automation of O2C be beneficial?

 

Like we read above, automating the whole O2C cycle can give better results. Automating OTC will save time, money and effort. There are lots of components in this like the treasury process, customer credit that can be performed better through automation.

 

Given below are the benefits of automating:

 

1. Simplification of reports

 

All the reports prepared through automated systems are uniform, quick, properly analyzed and without errors.

 

2. Real-time visibility

 

If all the components in the OTC cycle are automated then whatever is happening will be reported and shown on a real time basis. It means delay will be avoided and thus, better decisions can be taken.

 

3. Better Customer Experience

 

Automation brings consistency and speed. Customers are more satisfied if they get quick services and better support. Therefore, automation can help build better customer relationships and improve customer experience.

 

4. Time saving

 

Creating invoices, managing deliveries, handling staff can be very tedious and time consuming processes if you are invested manually into them. With automation all this can be prevented. Customers can connect themselves directly to the site and engage in transactions.

 

5. Improved Cash Flow

 

Processing payments, doing reconciliations manually can be risky. Intentionally or otherwise mistakes can happen. By automating the cycle we can prevent them and improve the cash flow.

 

6. Accurate

 

Automating brings consistency and accuracy in invoices, reports and even the data transfers. All manual risks can be removed and no one has to copy-paste.

 

There is not even a single component in the Order to Cash process that cannot be made better using technology and automation.

 

Also Read | What is Credit Risk?

 

Steps in Order to Cash Process

 

The O2C process is a mix of departmental interconnection, technology, and management. Lots of real time information is collected from multiple sources and even though branding, marketing and sales are not directly related to OTC, they still have an influence over the process. 

 

Given below are the steps in the Order to Cash process.

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Steps in O2C Process

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1. Order Management

 

It is the first step in the OTC cycle. Firstly a customer places an order. It can be through an online website, app, email or even through a customer sales rep. This process is mostly automated and once the order is received, the whole cycle starts. Notifications are sent to all the relevant departments and the cycle begins.

 

2. Credit Management

 

In some businesses credit is allowed to customers when they make the first purchase. Once the system recognises first buyers they are put for credit approval. Once they are approved the next step is initiated. 

 

In case no approval is given, they are treated as first buyers when they make the next purchase. Automating this step would entail better efficiency and consistent account receivable accounts.

 

3. Order Fulfillment

 

Next step is to ensure inventory fulfillment. Proper real time inventory checks should be done to ensure that no product goes out of stock. 

 

In case a product is out of stock then it must be red flagged and customers should be alerted to either cancel the order or wait until it is back in stock. It is somewhat related to the sales side and it also protects customers against billing issues.

 

4. Order Shipping

 

Order shipping is about logistics. Proper audits and surprise checks have to be done to ensure quality performance. 

 

Data from the above 3 steps should be communicated to personnel responsible for order shipping so that they can analyze and plan the shipping accordingly. Shipping details have to be informed and updated on a real time basis as well.

 

Also Read |  What is Logistics Management?

 

5. Customer Invoicing

 

If invoicing issues arise then it can lead to a cash crisis. It can also disrupt the whole cash flow system of the company. Proper billing has to be done and delays, omissions must be avoided at all costs. 

 

Relevant details about cost, quantity, tax, product number should be filled accurately. Automating invoicing steps can be of great help to increase the efficiency of the system. 

 

6. Accounts Receivable

 

Debtors' accounts must be audited regularly to figure out any outstanding dues. Any account that remains overdue for a certain time must be flagged and appropriate actions must be taken. Re-invoices should be issued to people whose accounts are found erroneous.

 

7. Payment Collection

 

Collecting payments timely is very important. Sometimes systems do not update the delivery time or status, because of which there is delay in collecting the payments. 

 

In case customers are asked for payments that they have already made, then friction is caused and relationships are hampered. Cash deficits and irregular cash flow maintenance can be caused because of it.

 

8. Reporting and Data Management

 

Automated systems help in reporting and data management. It is important for companies to analyze the flow of O2C cycle to find out the efficiency and overall effectiveness of the process. 

 

Estimating customer retention, customer relationships, length of cycle, service functions are managed through reporting.

 

Also Read | All About Revenue Deficit

 

The Order to Cash process is very important for the success of an organization. It helps in building better customer relations. Businesses are now shifting to many OTC softwares like SAP, Microsoft Dynamics 365 etc. to improve their efficiency.