Order to Cash
What is Order to Cash?
Order to Cash is a set of business processes that are involved from when a customer requests and places a sales order for goods or services, right through to when the customer pays for that order. If these processes are optimised, especially with Celtrino’s integrated solution, then inefficiencies can be eliminated to produce benefits throughout the entire business. For example, by streamlining the procedure for processing an order, invoicing, and then collecting payment for that order, company cash flow will be accelerated, costs will be reduced, and ultimately customers will be better accommodated.
Order to Cash is also known as O2C or OTC.
An O2C cycle consists of the following steps:
- A customer order is placed and documented
- The order is fulfilled
- The order is shipped to customer
- An invoice is created and sent to customer
- The customer sends payment
- Payment is recorded by Accounts Payable in a general ledger
The Order to Cash Cycle
Step One: Customer Places an Order
The O2C cycle begins anytime that a customer orders material goods or services from a company. This is the initial contact that a business has with a customer so if this process is straightforward and efficient for your customer it will help to build a relationship. However if there are problems such as a delay in submission of an order or time is spent with re-entering an order especially if this happens frequently then chances are they won’t return.
Step Two: Order is Fulfilled
This is when the sales order for the goods are prepared for shipment to the customer. The order is sent to the warehouse, the ordered goods are identified and are successfully picked up from the warehouse.
In an efficient process, the order fulfilment is directly linked to the ordering software. Workers involved in such a process then know exactly where to locate all the items within the warehouse in order to prepare orders for shipment.
Step Three: Order is shipped to the customer
In this step, the order gets shipped to the customer (or the service order is completed). With order shipping, some of this process can be automated. For example if the order is shipped and is marked as so, then an email with tracking information can be sent automatically to the customer telling them the order is shipped and also when they should expect to receive the goods or service. Shipping service providers or partners will normally deliver the goods to the customer.
Step Four: Invoice is created and sent to Customer
An invoice must be generated and sent to the customer. Automation can simplify this process and reduce any likelihood of error. Whenever possible, invoicing and even accepting payment for goods before delivery is desirable as it dramatically shortens the order to cash process time.
Step Five: Customer sends payment
The customer at this stage normally sends payment for the invoice. Ideally, there should be multiple payments options to choose from (electronic funds transfer, debit and credit cards, etc.). If the methods, which exist for customers to pay, are easy, then the payment for those goods should be on time and faster which again shortens the O2C.
Step Six: Payment is recorded by Accounts Payable
Once payment is received from a customer for an order, the accounts receivable section can record it as paid within the general ledger.
If you have inefficiency within this O2C cycle above, your business will encounter issues that have the potential to cause your business some financial loss. The sooner you fix these issues, then the sooner you can see your business progress and your profits increase.
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