The balance of a business’saccounts receivableledger, including aged debt and days sales outstanding (DSO), can provide insight intoinefficienciesin theO2C processwhich can be addressed to improvecash flow.
These inefficiencies tend to come from manual processes, these impact the accounts receivable (AR) team’s ability to handle invoice creation, presentment, and distribution. As a result, an inefficient O2C process will have a negative impact on payment timeframes, potentially driving up DSO and inhibiting cash flow.
The good news is that there are solutions. By automating the entire accounts receivable process, from credit management to invoicing and payment reconciliation, businesses can optimize every step of the O2C process for improved cash flow by bringing money into your organization faster.
What isorder-to-cashand where does this fit in thecash cycle?
Theorder-to-cashprocessencompasses all steps fromwhen a customer order is placed up until the business is paid (the cash). Those steps includeorder managementandorder fulfillment, through tocredit management, theninvoicingand ultimatelypayment collection.
O2Chas an implicit connection to the supply of goods and order fulfilment, therefore driving a need for goodsupply chain managementprocesses to be in place.
Benefits from optimizing theorder-to-cashprocess
The biggest hurdle to accounts receivable productivity is the fact that AR processes are often too complex, with too many disparate financial systems, too little standardization, and too many manual steps. These processes are often compounded by interruptions resulting from issues demanding quick resolution.
As every business leader knows, free cash flow is the single most important metric to determine the health of their business. The AR department has a uniquely influential role in facilitating cash flow. By shortening the time from purchase to order and invoice delivery, as well as simplifying the payment process, cash flows more readily. Therefore, assessing and adjusting the O2C process is the most obvious place to address cash flow challenges.
In addition to cash flow improvements, the top benefits from optimizing theorder-to-cashprocessinclude the following:
- Revenue generation ─ a streamlined purchase and fulfilment process, swift, accurateinvoicing,and ease of payment improvecustomer satisfactionand encourage repeat purchasing as well as customer advocacy. These factors can have a positive impact on sales growth.
- Customer experience ─ customer relationshipscan be won or lost on the experience oforder fulfillment,invoicing,and payments. A reliable O2C system to manage invoicing and fulfilment, in addition to disputes and credit collection, promotes accuracy and timeliness, contributing to improved customer experience.
- Cost savings ─ Stronger internal controls through an automated O2C process significantly reduces or eliminates errors and makes it easier to support early payment discounts. With business processimprovement, any company can bring down overheads, resulting in lower operational expenses and supporting operational leverage.
Steps taken in theOrder toCashProcesses
1. Order management
Everything starts with an order. A customer places an order viaecommerce, directsales orderprocesses, or other means. Once the order is placed, inventory is checked by theorder processing systemto confirm the goods can be dispatched. Once verified, a delivery timeframe is issued. The customer’s credit facility will be check to determine whether the order was accepted on existing credit terms. The order is then recorded in the sales ledger and the goods are shipped. Finally, automatic re-ordering via theERP system, is triggered in the supply chain to ensure the inventory is replenished for future sales.
2. Credit management
The vast majority of B2B sales are made on credit, allowing time for an invoice to be generated, sent, and paid, without slowing down the fulfilment of each order. But credit must be awarded based on an assessment of each buyer’s ability to pay. Carefully determining credit at this early stage prevents payment risks when invoices are due.
3. Customerinvoicingsystem
Customers are invoiced for each order to request payment, within a specified timeframe, for the goods they have purchased. The bestcustomerinvoicingsystemsautomatically generate and deliver invoices to customers when they purchase. However,invoicingautomationneeds to take into account a large number of nuances and variables, including invoice format, delivery mechanism and media, recipient, approval process, associated documentation and many other factors.
4. Accounts receivable
Once a sale is made and goods are shipped, theaccounts receivableprocess kicks in. This encompasses invoice generation and delivery, tracking and reconciliation of payments against the ledger.
Savvy accounts receivableteams willautomatethe sending of payment reminders, or statements, before invoices are due. It is the responsibility of theaccounts receivableteam to investigate and resolveinvoicingerrors, reissuing invoices to the correct amount if errors have occurred.
5. Payment collection
The process forcustomer paymentsshould be made clear at the time of purchase and in the invoice (or accompanying documentation).Payment collectionthen either occurs through customers making online payments, bank transfers, or submitting payments in some other format. A purchase order number is a typical tracking reference that ensures each payment is correctly matched to the corresponding order.Outstanding invoicesare chased directly until a predefined point, at which time they are either written off as bad debt or passed to a third-party collections agency.
6. Data management
Across theO2C process, gooddata managementis key. Theorder managementsystemneeds to connect, inreal time, toinventory managementvia anenterprise resource planning(or ERP) system. In this way, the organization can work across systems to determine stock levels and fulfil orders or trigger reorders.
Theinvoicingsystemneeds to accept a trigger to create an invoice when orders are fulfilled, the system then pulls in data about the order, checking the customer’s credit limits and agreed payment terms, before generating and delivering an invoice to the correct contact.
Thepayment collectionsprocess then needs to link back to the purchase ledger to ensure payments are reconciled against the correct order. Each and every step can, and should, be automated to improve efficiency and accuracy.
Optimizeorder-to-cashwithautomation
A comprehensive approach to optimizing the O2C process will combine technology, consultative services and financial services. Many organizations leverage technology because it can automate customer credit decisioning or AR and Treasury processes within the O2C cycle. Automation reduces or eliminates manual and paper-based processes. The attendant cost savings and error reduction usually present a positive ROI. AutomatingtheO2C processbrings a wealth of benefits, including the following:
Time Savings: Invoice creation and delivery can be very manual processes, consuming valuable skilled staff hours.By automatingprint and postal delivery, or the emailing of invoices and delivery of follow-up communications to chase payments, the AR team can focus on more business-oriented issues.Automationcan even take output from anERP systemand connect this directly with buyers’ accounts payableinvoicingportals – bypassing the need to manual re-key or copy-paste invoices into these.
ImprovedCash Flow:Automationdoesn’t just save process time, it preventsbottlenecksin invoice delivery, payment processing, and reconciliation. These factors reduce friction in bringing cash into the business, thereby improvingcash flow.
Improved Accuracy:Automationhas a positive impact on accuracy across the wholeO2C process. When machine systems talk to each other, by direct data transfer, there’s no risk of copy-paste or other human errors occurring.
Cost Reduction:The time savings from processautomation, as well as reduction in queries and helpdesk calls, can be so significant they often make investments in aspects of O2Cautomation, such asARautomation, pay for themselves within a few months.
ImproveCustomer Experience:Customer relationshipsbenefit from the improvementsautomationbring to process consistency, fulfilment reliability, brand perception and ease of payment.
GainReal-timeVisibility:Automationoforder-to-cashprocessesmeans that each stage is handled digitally, therefore easily tracked and presented at a glance via management information dashboards or other methods.
Simplify Reporting and Audits: By automatingtheO2C process, all actions and data are available for grouping and analysing as reports or as audit trails at the touch of a button.
Consistency in theO2C Cycle
Consistency across theorder-to-cashprocessensures predictability of outcomes and presents customers with a positive brand experience. Here are some of the mainworkflowsthat need to be followed and checked on a regular basis, or ideally automated, to maximise consistency.
- Order management: Develop a consistent approach to checking stock, fulfillingsalesordersand reordering to replenish stock.
- Credit management: Maintain a consistent approach to determining credit worthiness, setting payment terms, and credit limits.
- Invoicingworkflow: Create and deliver invoices in a consistent layout, with appropriate branding, within as a short a time as possible.
- Payment collection: A range of payment options, ideally linked directly from the invoice and with a consistent payment process consistent, reduces problems that may delaycash flow.
- Late payment reminders: A consistent approach to reminding customers that their invoice is due for payment (perhaps two weeks ahead of the payment deadline), and then sending reminders/dunnings at set timeframes for late payments, will helpcash inflowand minimise payment delays.
Promotingcustomer satisfactionand business success
When fully optimized through automation, theorder-to-cashprocess can have a positive impact oncash flowandcustomer satisfaction. While tech solutions can bring benefits to your organization, it isn’t enough to bring your O2C operations to where you want it to be. Without providing financial management and consultative services, an automation-only approach cannot deliver the results that you need with the speed demanded by the current financial climate.
At Corcentric, we help clients optimize all aspects of theO2C process, such asinvoicing,accounts receivable,and payments. Our experience has shown us thathigh-techworks best when the deployment ishigh-touch, so all of our order-to-cash software solutions are delivered as managed services. Get in touch directly to find out how we can help optimize yourcash cyclethroughautomationoforder tocashprocesses.
