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Every business and company operates to gain success and the order to cash process is an important component for businesses to ensure success. It’s safe to say that it plays an essential role in optimizing the brand’s relationship with its customers. Since the OTC directly influences the process of revenue generation for businesses, the optimization and effectiveness of the process have a significant effect on streamlining the business cash flows and improving the organizational bottom line.

Inefficient order to the cash process leads to lesser lead generation, more shipping errors, and disorganization of payments. All of these are pressing issues, which would negatively impact the organization’s revenue generation. Also, businesses would need to invest significant money, time, and resources to address these issues.

That’s where OTC optimization comes to the rescue. OTC optimization helps businesses save time and resources to address pinning revenue generation issues, helping them to achieve organizational bottom lines faster, and better. OTC optimization has become even more important for businesses following the financial crisis brought about by Covid-19. With one of the worst depressions in history due to multiple months-long forced shut-downs, businesses desperately need to optimize their OTC to negate any further crisis due to cash flow mismanagement. With an optimized order to cash process, businesses can maintain adequate cash flows, which could be vital to surviving in today’s pandemic-hit environment by ensuring quicker delivery to and from clients, and enhanced customer service and brand loyalty.

Not to forget, it can reduce delays, minimize the chances of errors, and promise high-end performance standards. However, the O2C process is still new which is why we are sharing details about the order to cash process, so are you ready to dive deeper into the details?

Order To Cash Process – What Is It?

To illustrate, the order to cash process is defined as the order processing system of the company and it starts when the customers book an order. Before the order placement, there are different functions to be completed, such as sales, marketing, and branding. However, branding and marketing functions won’t be diminished even after order placement.

That’s because the core activities happen even before the beginning of the order to cash process. Still, some brands have a misconception that the order to cash process ends when the order is received by the customers and pays for it. However, it doesn’t because there are more important phases that occur after order completion and payment.

For instance, the activity data has to be recorded throughout the O2C cycle and it has to be analyzed. The analysis assists management in defining the opportunities for brand optimization and improvement.  

Businesses Impact the O2C Cycle 

The brands are striving to optimize the O2C process for multiple reasons. To begin with, it can impact the operations all across the organization such as labor management, supply chain management, and inventory management. For instance, different business operations can be impacted if the O2C process isn’t optimized, such as;

  • account receivables and invoicing functions during the O2C process can impact the cash inflow
  • the delay in payment collection can result in complications in payrolls, liquidity, account payable, and acquisitions

The management of the O2C process reflects that the business isn’t working as a one-trick pony. For this reason, process management requires businesses to nail every business process, inclusive of technology management, manufacturing, sales, accounting, and shipping.

The Order to Cash Process 

When we talk about the O2C process, it’s also important to outline that technology is an undeniable part of the cycle. This is because there isn’t even one action that cannot be improved through advanced tech solutions or unified systems. If you want to ensure the optimized management of the process, it demands different business parties have access to real-time and accurate information.

In addition, tools like digital invoicing and automation must be incorporated. It’s safe to say that if companies want to yield promising results from the order to cash process, it demands the incorporation of technology, interdepartmental connectivity, and process management. Now that we are clear about the tech role, we can move on to the different steps that create the O2C process, such as;

  • Order Management 

This is the first step of the order to cash process and it’s initiated as soon as the order is placed by the customer. The order management phase has to be started as soon as the order is confirmed. This means that it doesn’t matter if the order is placed through an eCommerce platform, by talking to the sales representative or emailing the order to the sales department,

The order management processes have to be automated and there must be instant and real-time notifications to ensure the order is processed on time. The orders must be organized and the relevant departments must be notified instantly for on-time and precise order fulfillment. A bonus point; you can opt for eCommerce integration solutions to ease order handling.

  • Credit Management

Credit management is known to be the front-facing image of the O2C process and is known to reduce errors. If the credit is applicable, the customers who placed the order the first time should be taken to the credit approval process automatically. This is because the automated software can manage the denials and approvals more efficiently.  

In addition, it can notify the finance department if there is a need for in-depth review. If the current credit approval is at the fulfillment stage, the order management solution will send it to the returning customers. However, if the returning customers had refused the order in part or didn’t have credit, they have to be treated as first-time customers. Also, automated credit management eases the accounts receivables. As for the credit, it should be provided only to eligible customers.

  • Order Fulfillment

This is the third step of the order to cash process. At this point, automated inventory management software is essential for optimizing order fulfillment processes. The inventory counts have to be updated on a real-time basis to ensure the company doesn’t accept orders that cannot be fulfilled. In addition, if the out-of-stock order is accepted, it has to be flagged instantly.

In addition, the customers must be notified in case of an out-of-stock item and the order has to be canceled (it will also reduce the chances of billing errors). Also, if the order has to be fulfilled, it must be done in a standardized manner (the digital system is preferred) along with all the relevant information. Keep in mind that paper-based orders result in inaccuracy, bottleneck issues, and expensive errors, so opt for digital systems.

  • Order Shipping

When it comes down to order fulfillment, the success depends on the logistics and the shipping must be well-regulated. In addition, it has to be audited to ensure the performance standards aren’t compromised. Furthermore, the data has to be updated to the shipping department because it helps them design the drop-off and pickup schedules.

  • Customer Invoicing

Invoicing inaccuracies and delays can cause snowball effects and result in cashflow errors. These errors have the capacity to damage the entire business. However, when the correct and accurate invoices are shared with the respective staff on time, it helps them forecast the inflows and optimize the expense management processes.

The invoicing software systems must have accurate information and data from the staff. In addition, the data points have to be inputted into the invoicing solutions. These data points include the credit terms, costs, order detail, dates, and shipping dates, so everything should be automated with accurate information. Also, it has to be shared with the entire team without any delay.

  • Accounts Receivable

The automated accounting systems must be marked in case of outstanding dues at the right time before it causes an overdue. In addition, the account receivables and invoices must be reviewed to see if there are discrepancies (the discrepancies that can result in payment delays). So, if the discrepancies are identified, the staff has to review the data and share a revised invoiced.

  • Payment Collections

When it comes down to the defense against the backlogs of payment collection, the representatives must document the received payments within a designated timeline. The organizations struggle with issues when the payments are delivered but aren’t processed into the ordering software. These issues result in friction because customers can ask for already-remitted payments.

Not to forget, it can cause inaccurate cash estimation, hence incorrect cash forecasting. In addition, when the invoice lapses into the overdue timeline, the accounts must be notified and the credits must be put on hold. That being said, when customers place another order, the automated system will notify the customers that advance payment is needed before the order completion.

As for accounts receivable staff, they must contact the customers with overdue invoices and identify the penalties and collection processes. In addition, the finance and accounting leaders must review these overdue accounts regularly to keep up with the forecasting and design new processes. Here businesses can significantly benefit from the Magento integration solutions for the orders, which can streamline the financial management for companies.

  • Reporting & Data Management

The unified or interconnect programs have the capacity to track the data on different phases of the O2C process. With proper data analysis and monitoring, the companies can determine how process flow can impact every organizational function. These factors include the length of the sales process, customer relationship, customer services, and onboarding.

Moreover, these data points can be used by the management to see if any issue is causing errors in other processes. It’s needless to say that the order to cash process is interdependent which means the small errors can snowball into highly expensive issues.

Challenges Associated With Order to Cash Process

For the most part, the order to cash process looks pretty straightforward but there are various moving areas. This means that failure or error at one step causes damage to the entire cycle. For this reason, all the processes demand attention and regular reviews to ensure seamless collaboration. Some of these common errors include the following;

  • Security issues with data
  • Inaccurate information about sales orders
  • Collection delays
  • Dissatisfied customer base
  • Time-consuming invoices (in case of manual invoices)

In case of inaccurate orders, it means that the order has to be redone which will consume precious business time. In addition, manual invoicing is more prone to errors and consumes too much time. In case these issues result in wasted time, the collections will be delayed and these delays can complicate various business processes, such as acquisitions, account payable, and payroll.

Moreover, it’s high time that brands focus on customer satisfaction. So, errors in the order to cash process can cause issues with customer experience. For this reason, companies can opt for customer relationship management software (integrating ERP with CRM is also an option for better performance) because it helps manage customer relationships. Also, there is a need for cybersecurity solutions because data breaches can also result in dissatisfaction.

Best Practices & Tips for Order To Cash Process 

  • Developing Company Standards 

It doesn’t matter what scale your company is operating at; you must develop the standards that ensure consistency. We are saying this because consistency ensures smooth operations. For this reason, the standard processes must be designed to reduce the cycle time and free up time for more important business operations. In addition, it leads to well-managed operational costs, hence easier operational management without causing expensive errors.

  • Unifying the Systems

How many computers are you likely to use to manage regular business procedures? How many computer systems have independent functioning? How many computers are integrated? Unifying the systems might not reduce the cycle time but it can surely reduce the chances of errors.

While, the integration of billing, ordering, payment system, and fulfillment might feel too time-consuming. However, if we look at the bigger picture, it will eventually help save time. To illustrate, when the order data is received, it is automatically sent to the fulfillment phase and then to billing and payment recording. In simpler words, can you imagine how much time can be saved when you don’t need to push the order manually?

  • Regular Monitoring & Process Evaluation

When the system is aptly configured, it can send out automated notifications in case of exceptions. For instance, if there is a need for human help for the review, or if the system detects some transactional issues. That being said, you will need to hire trained and skilled staff to ensure efficient operations with robust monitoring and process evaluation.

In addition, the managers must review the key metrics on a quarterly basis for identification of the issues, and steps must be taken to fix the issues. There is a need for constant evaluation to ensure the processes are operating smoothly and the improvement areas are readily identified.

The Bottom Line

The order to cash processes are crucial to businesses and optimizing them can directly influence every business facet (even the multi-faceted businesses should use them). That’s because it’s the core or foundation of creating a profitable business. So, you have to pay attention to every step of the order to cash cycle as it helps save money and time. Not to forget, it promises higher customer satisfaction, so now is the right time to get on with system integration!

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