Order-to-Cash (O2C)

Definition

Order to Cash, sometimes referred to as OTC or O2C, is the set of business processes for receiving and processing customer orders. It involves all the steps with receiving and fulfilling customer requests for goods and services.

Order to Cash encompasses the entire lifecycle of order fulfillment, including all the numerous strategies involved such as inventory management, operations, and production. The Order to Cash cycle steps are as follows:

  1. The process begins when the customer order is received via email, Internet, salesperson, or call. In some businesses, the contract can be pre-negotiated, or for larger orders a short or long term contract.
  2. Next, a company utilizes the supply chain to get products out of stock or manufacturing, prep products for shipment, schedule the service, and deliver the order to the customer.
  3. Once the order has been shipped and received, the next step is invoicing the customer and collecting payment.
  4. After the customer payment is made, it is recorded by accountant to the company’s general ledger.

Optimizing the Order to Cash cycle is essential to achieving efficient use of a company’s resources. Any business has limited production capacity and time, so it’s important to maximize their usage in order to maximize profits.

Order to Cash is one of many top-level business processes. Others include Opportunity to Order, Procure-to-Pay (P2P), Issue to Complete, Hire to Retire, Concept to Launch, and Sustain and Retain.

Best Practices

An optimal Order to Cash cycle is the goal as it makes efficient use of the company’s resources and therefore maximizes profits. It’s best practice to perform internal reviews of their Order to Cash cycle periodically looking for places to improve efficiency. During these audits, many companies can identify bottlenecks that slow down the production process, leak too much cost, or identify outdated systems for processing or manufacturing orders.

In the case of manufacturing firms, they need to continually monitor their Order to Cash cycle for constant improvements. If a company is unable or slow to produce and fill orders, they are not operating at maximum efficiency. Employing a company’s tools and resources efficiently is the best way to stay profitable and competitive in today’s competitive market. A strong Order to Cash cycle not only increases profits, but also improves a company’s reputation and ability to garner more business.

Data Points

Source: Order to Cash Solutions for SAP Systems (Dolphin)

BoldCFO is about transforming finance operations to grow your business ©