Order to cash (OTC or O2C) is an end-to-end business process that encompasses all the steps of fulfilling customer orders, from the moment a customer places an order to the moment a business receives and records payment. Efficiency and accuracy are important for O2C, and businesses that reengineer their O2C process increase their revenues by 1%–3% a year.

Below, we’ll explain every stage of the process, look at the ways technology can refine and automate parts of the process, and detail best practices businesses should consider when plotting out an O2C flow.

What’s in this article?

• How does the order-to-cash process work?
  
• How technology facilitates the order-to-cash process
  
• Order to cash vs. quote to cash
  
• Best practices in order to cash
  
• How to automate the order-to-cash process
  
• How order to cash works in subscription businesses
  

How does the order-to-cash process work?

The order-to-cash process is a sequence of events that begins with a business receiving an order and ends with the business collecting payment and managing data related to the transaction. Here’s a look at each stage:

Order management

The business receives and validates a customer’s order.

• Order entry: Capturing all relevant details from the customer such as product specifications, quantities, prices, and delivery information. This often involves integrated systems in which orders can be automatically input through ecommerce platforms or manually entered by sales staff.

• Order confirmation: Confirming the order with the customer to verify all details are correct.

Credit management

The business assesses the creditworthiness of the customer to minimize financial risk. This is especially important in business-to-business (B2B) transactions or for high-value orders.

• Credit check: Evaluating the customer’s credit history and credit status.

• Credit approval: Deciding whether to extend credit to the customer and under what terms, including setting credit limits and payment terms.

Order fulfillment

The business fulfills the order.

• Warehouse management: Locating the items in a warehouse, and packing them for shipment.

• Quality check: Checking that the products meet quality standards and specifications before they are shipped.

Shipping

The business ships the product to the customer.

• Logistics coordination: Choosing the best shipping method and carrier based on cost, delivery speed, and reliability.

• Documentation: Preparing necessary shipping documents such as bills of lading, invoices, and export or import documentation if applicable.

Invoicing

The business generates an invoice and sends it to the customer.

• Invoice creation: Detailing the products or services provided, the amounts due, and payment terms.

• Invoice dispatch: Sending the invoice via mail, email, or through electronic invoicing systems.

Accounts receivable

The business receives payment from customers.

• Payment tracking: Monitoring incoming payments against outstanding invoices.

• Reconciliation: Matching payments received to their corresponding invoices.

Payment collections

The business begins collection efforts for invoices that are not paid by the due date.

• Dunning process: Sending reminders and making calls to encourage prompt payment.

• Debt recovery: Involving collection agencies or seeking legal action in cases of prolonged nonpayment.

Data management

The business manages data throughout the O2C process.

• Data analysis: Gathering and analyzing data from each stage to identify trends, inefficiencies, and opportunities for improvement.

• Reporting: Producing reports for internal stakeholders that provide insights into sales performance, customer payment behaviors, and overall financial health.

How technology facilitates the order-to-cash process

Here’s how technology is involved in the O2C process:

• Enterprise resource planning (ERP) systems: ERP systems integrate all facets of an operation, including order management, inventory, accounting, and customer relationships. This integration provides real-time data flow across the O2C process. Staff from different departments (e.g., sales, finance, logistics) can access the same information, which reduces discrepancies and improves response times, and ERPs can automate tasks such as order entry, invoice creation, and payment reminders, which reduces the need for manual intervention and minimizes errors.

• Customer relationship management (CRM) systems: CRM systems help manage interactions with current and potential customers, track sales, and organize customer information. CRM systems store detailed customer profiles, including order history, payment behaviors, and personal preferences, which helps personalize services and predict sales. They manage consistent, tracked communication with customers regarding order confirmations, changes, and payment reminders.

• Ecommerce platforms: Online sales platforms integrate directly with O2C systems to automate the capture and processing of orders. When a customer places an order online, the details are automatically fed into the order management system without manual data entry. These platforms can update inventory in real time, maintaining accurate stock levels and reducing the risk of overselling.

• Automated billing and invoicing software: Automated billing and invoicing software automate the creation and dispatch of invoices based on the shipment information, speeding up the process and reducing administrative burdens. This software automatically sends invoices to customers via email or through a customer portal immediately after dispatching goods and lets customers pay invoices online through a variety of payment methods.

• Supply chain management (SCM) software: SCM software simplifies the logistics involved in the O2C process. It determines the most effective routes and schedules for delivery, which reduces delivery times and costs, and automatically selects the best shipping methods and carriers based on cost, delivery time, and service quality.

• Data analytics and reporting: Data analytics and reporting features provide deep insights into the O2C process, letting businesses monitor performance and identify areas for improvement. These features also help forecast sales trends, customer payment behaviors, and potential bottlenecks in the O2C process and generate detailed reports on aspects such as accounts receivable aging, customer order history, and revenue.

• Artificial intelligence (AI) and machine learning (ML): More and more, AI and ML are being used to predict customer behaviors, optimize inventory, and personalize customer interactions. These features can handle customer queries in real time, provide order updates, and even facilitate transactions. They can also analyze transaction data to predict customer payment behaviors and fine-tune credit limits and terms.

Order to cash vs. quote to cash

Order to cash (O2C) is primarily concerned with fulfilling orders and collecting payments, while quote to cash (Q2C) takes a broader view, encompassing the entire sales cycle and focusing on optimizing revenue generation. Here’s a brief breakdown of the differences between O2C and Q2C.

Order to cash

O2C focuses on the transactional steps that occur after a customer places an order. It covers the entire fulfillment process, from order receipt and processing to delivery, invoicing, and payment collection. It typically involves standardized processes and transactions, which makes it less complex than Q2C, and it primarily relies on ERP systems, inventory management software, and accounting software to automate and simplify processes.

O2C is considered a subset of Q2C because it covers the latter stages of the overall sales process.

Key stages

• Order placement

• Order processing

• Inventory management

• Order fulfillment (picking, packing, shipping)

• Invoicing

• Payment processing and collection

Quote to cash

Q2C encompasses the entire sales cycle, starting from the initial customer inquiry or lead generation. It includes presales activities such as product configuration, pricing, quote generation, and contract negotiation, and then moves into the traditional O2C process. Q2C personalizes the entire customer experience, from initial inquiry to final payment, by providing tailored solutions, accurate quotes, and smooth contract negotiations.

In addition to ERP, Q2C uses configure, price, quote (CPQ) software, contract lifecycle management (CLM) tools, and CRM systems to manage the presales and sales processes. It deals with customized configurations, pricing negotiations, and contract terms, making it a more complex process that often requires manual intervention.

Key stages

• Lead generation and qualification

• Opportunity management

• Product configuration and pricing (CPQ)

• Quote generation and negotiation

• Contract management

• All the stages of O2C

Best practices in order to cash

These best practices can improve the order-to-cash process:

Automation and integration

• Use an integrated ERP system that automates and centralizes data across the O2C cycle. This keeps all data—from order entry to accounts receivable—accessible and accurate.

• Use AI to automate repetitive tasks such as data entry, invoicing, and basic customer service inquiries through chatbots. ML can be used for predictive analytics to forecast customer payment behaviors and potential delays.

Data and analytics

• Establish real-time analytics and dashboard reporting to monitor key performance indicators (KPIs) such as days sales outstanding (DSO), the average time to close invoices, and customer payment trends.

• Use advanced analytics to identify inefficiencies and bottlenecks in the O2C process. Analyze customer data to tailor payment terms or incentives for early payment based on their transaction histories.

Credit management

• Use dynamic credit scoring models that update credit scores based on real-time data and recent customer activities, rather than relying solely on periodic reviews.

• Use technology to automate credit approval processes, speeding up the sales cycle while maintaining control over credit risk.

Customer relationship management

• Provide customers with self-service portals where they can place orders, check order status, make payments, and access invoices and payment histories. This improves customer engagement and reduces administrative overhead.

• Use CRM systems to track all customer interactions and develop personalized experiences and proactive service, such as notifying customers of issues with an order before they need to inquire.

Order fulfillment and logistics

• Implement lean inventory techniques to reduce waste and maintain optimal stock levels. Use demand forecasting and just-in-time inventory systems to minimize holding costs and reduce the risk of stockouts or excess inventory.

• Enhance shipping and logistics with integrated solutions that connect directly to order management systems, allowing for automated carrier selection, real-time tracking, and key route planning.

Invoicing and collections

• Use electronic invoicing systems that reduce paper waste, speed up delivery, and facilitate quicker payments.

• Develop a tiered collection strategy that begins with gentle reminders as due dates approach and escalates appropriately. Use automated systems to track invoice statuses and flag overdue accounts.

Compliance and security

• Regularly update systems and processes to comply with relevant financial and data protection regulations (e.g., General Data Protection Regulation [GDPR], Sarbanes-Oxley [SOX] Act compliance) to protect customer data and avoid legal penalties.

• Implement advanced cybersecurity measures to protect sensitive customer and financial data from breaches, especially in payment processing and data storage areas.

Continual improvement and feedback

• Establish mechanisms for capturing customer feedback through the O2C process, using these insights to make continual improvements.

• Adopt agile process management systems, allowing for quick adaptations based on feedback and changing market conditions.

How to automate the order-to-cash process

Automating the O2C process can speed up operations, reduce errors, and improve customer satisfaction. Here’s a step-by-step look at how to automate components of the O2C process:

Assessing needs and goals

• Begin by mapping out the O2C process to identify all steps, touchpoints, and dependencies. Pinpoint areas prone to delays or errors. Common targets for automation include data entry, invoicing, and collections.

• Define what success looks like with specific, measurable goals. This might include reducing the DSO, improving customer satisfaction scores, or decreasing labor costs.

Selecting the right technology

• Invest in an integrated ERP system that combines finance, sales, and inventory management to facilitate real-time data sharing and process automation.

• Use a CRM system to automate customer interactions and integrate with your ERP system for easy flow of customer data.

• Implement tools that automatically generate and send invoices when goods are shipped or services are delivered.

• Use AI for predictive analytics to forecast customer payment behaviors and ML to automate decision-making processes.

Integrating and implementing

• Ensure all chosen systems can integrate easily. This might require middleware or custom integrations to allow for smooth data flow between systems.

• Automate repetitive tasks such as order entry, credit checks, invoice generation, and payment reminders. Use workflow automation tools to create if-then scenarios that trigger actions based on specific events.

• Before full implementation, conduct thorough testing of the automated processes to ensure they work as intended without disrupting operations.

Training and change management

• Provide comprehensive training to all relevant staff members on how to use the new systems and to help them understand new automated processes.

• Manage the transition carefully to mitigate resistance from employees. Explain the benefits of automation, and emphasize how it will simplify their work (rather than replace their roles).

Monitoring and optimizing

• After implementation, monitor the automated processes to confirm they are functioning correctly and having the desired impact.

• Solicit feedback from users and customers about their experience with the automated processes to identify areas for improvement.

• Use the collected data and feedback to improve the automation strategies.

Ensuring security and compliance

• Implement strong cybersecurity measures to protect the automated systems and the data they handle.

• Ensure all automated processes comply with relevant laws and regulations, particularly those concerning data protection and financial transactions.

Scaling and expanding

• As the business grows, ensure the automation solutions can handle increased volumes without performance degradation.

• Look for additional areas within the O2C process and beyond where further automation could drive benefits.

How order to cash works in subscription businesses

The O2C process has unique characteristics in subscription businesses because of the recurring nature of transactions and the ongoing relationship with customers. Here’s how the O2C process typically functions in subscription-based models:

Customer acquisition and onboarding

• Subscription sign-up: The customer subscribes to a service or product via an online platform, over the phone, or through a physical form. The customer chooses a subscription plan, enters personal details, and sets up a payment method.

• Account creation: A customer account is created in the business’s CRM and billing systems. This account will track all the customer’s subscription details, billing cycles, and interactions.

Order management

• Subscription confirmation: The system confirms the order, typically sending an email or notification to the customer outlining subscription details including service level, pricing, and billing frequency.

• Order entry: The subscription details, including the recurring billing schedule, are entered into the order management system.

Billing and invoicing

• Recurring invoicing: Automated systems generate invoices based on the recurring billing cycle (monthly, quarterly, or annually).

• Automatic payment processing: Auto-debit systems automatically charge the customer’s credit card or bank account each billing cycle. Most subscription services set up these automated systems.

Revenue recognition

• Deferred revenue management: The income from subscription payments is recognized incrementally as the service is provided because subscription payments are typically received in advance for services that will be delivered over time.
  

Service delivery

• Continuous service provision: Subscription businesses deliver value continuously, whether that’s access to software, regular product shipments, or ongoing services.

• Quality assurance: The business works to maintain consistent service quality because any disruption can lead to cancellations.

Customer relationship management

• Ongoing customer support: The business provides continuous customer support to address any issues and maintain customer satisfaction.

• Account updates: The business handles any updates to the subscription, such as upgrades, downgrades, or cancellations.

Renewals and retention

• Renewal management: The business sends reminders and offers to encourage renewal before the expiration of a subscription period.

• Churn reduction: The business analyzes customer behavior to identify those at risk of cancellation and implements strategies to retain them.

Collections and payment follow-ups

• Dunning management: The business manages overdue payments through automated reminders and follow-up contacts.
  

Analytics and reporting

• Performance metrics: The business monitors metrics such as monthly recurring revenue (MRR), customer lifetime value (CLTV), churn rate, and retention rates to gauge business performance and guide important decisions.

• Feedback and improvement: The business collects and analyzes customer feedback to improve the product or service and customer experience.