In the financial world, the idea of having an efficient Order to Cash is to translate sales into actual benefit of the organization. It is vital for a business to optimize it’s Order to Cash process in order to maintain smooth and efficient operations. Take a look at the various processes in the entire Order to Cash cycle, and its impact on an organization’s overall business model.
In the present world, with changes happening in a mere few seconds, customers both in B2B and B2C space demand for seamless transactions at a personal and as well as a professional space. Improvising on an organization’s order to cash process steadily affects the company’s business growth and has a steady impact on it’s revenue. The more efficient a company’s operational Order to Cash processes are, chances are that the less time they will spend on collections, and instead of focusing on undue payments and invoices, analysts can focus on how to enable commercial growth by reducing and controlling risks.
Processes involved in Order to Cash
- Order Placement and ManagementThe first step in the Order to Cash Process involves Order Placement and Management. In order to tackle this effectively, one must make sure that there are no delays in terms of accepting the order, or having order re-entries.
- Credit ManagementOnce an order is placed through, there should be a credit approval management system for the customers. This is to ensure that there are no bottlenecks from the customer’s side towards the end of the process. A proper credit management system involves a thorough review of the customer’s credit portfolio and having some credit guidelines. This should be done in order to ensure that credit is provided only to those who will be able to pay the amount within the fixed time.
- Order fulfillmentDuring the process of Order fulfillment, the inventory is always checked and updated in order to avoid any orders that cannot be fulfilled. However, if in case if there arises a situation where the order is processed but the product is out-of-stock/not in service anymore, the customer must be immediately informed, and the order should be cancelled immediately to avoid any untoward issues towards billing and payment. Fulfilling the order within the said period effectively not only prevents unnecessary hassle for the company, but also solidifies the customer’s trust upon the company, which is vital.
- Order ShippingOnce the order has been prepared for shipping, it is then passed on to the carrier services, who then deliver the product to the customer. While the process is carried over by the carriers, the company should involve documents such as Proof of Delivery, which involves the list which includes the list of goods sent with the statement of their sum.It is to verify that the buyer received the goods sent by the seller.This process also involves a document called the BOL which is the bill of lading which has the detailed list of truck cargo in the form of a receipt that is given by the shipper of the cargo to the person consigning the goods. In case of any dispute resolution after,these bills are taken into consideration for the process of resolution.
- Customer billing/invoicingThe process of invoicing is important post delivery, in order to ensure a smooth and hassle free payment operations. It should be noted that once the payment is made for the goods that are delivered to the customer and the same is received by the client, the client issues an AR invoice indicating the payment that is made. If the complete payment has been made the invoice stands closed otherwise the same is updated and brought down.
- Payment CollectionsThe payment collections could be done in multiple processes through which a customer can pay. This process is vital, especially when a company trades in their goods on credit. However, if there is a lapse in the payment, and the invoice remains overdue, the customer must be flagged and their credit must be put on hold. This should be reviewed periodically by the organization to keep themselves updated with bad debt forecast and proceed accordingly.
- Payment Reporting and Ledger ManagementOnce a payment for an order is received, it is then taken into consideration and added into the general ledger for record. In case if there is a dispute that arises due to this, then it should be resolved instantaneously in order to avoid any further workload on the collections department.
Problems faced in the Order to Cash Processes
When it comes to Account Receivables, the major issue is to make sure that an organization gets its payment within the stipulated time period, at the same time making it as much customer-friendly as possible. One should always keep in mind that there should not be any damage to the customer relationships due to inept collections processes. The Order to Cash process is very often challenged by operations that are either in-silo or are inefficient. Most of these challenges are stems from the fact that information, with regard to the customer as well as the order, tends to remain fragmented across multiple systems. Inefficient Order to Cash services leads to higher DSO, which in return leads to increased write-offs. Certain problems that are faced on a regular basis are enlisted below :
- Order diversityGenerally, orders are received through multiple sources, that could include either requests via email, telephone, fax or directly from the retailer’s website. In case if there is a lapse in the order processing system, then the entire process already starts becoming a bit flummoxed. In such cases, orders are taken manually, due to which the entire process becomes slow and cumbersome. Also, chances could be that the order is not processed correctly, and a wrong product/service could be delivered to the customer. This could put the sales department’s reputation at peril, and incur additional losses for subsequent purchase returns.
- Manual InvoicingIn case of invoices, most of the customers, irrespective of whether they’re in the B2B or B2C segment, request for invoices that would have details such as their purchase order number, invoice number, etc, so that they could cross-verify the order details and the payment terms. Such invoices if created manually, is time consuming, and is prone to human errors.This in return could result in additional work for the accounts team.
- Issues faced during purchase orders and invoicingThe collections process, which occurs post delivery is one of the most important processes in Order to Cash process that either makes-or-breaks the entire system. While companies do provide customers with due dates ranging from 10 days or earlier to 60 days or more, the unprecedented timings for collections from different customers makes it a hefty task for them to forecast. Also in case if there is a dispute post delivery of order (damaged/wrong product, customer dissatisfaction, etc.), unless there is a resolution, the customer might refuse to make the payments, turning this into a more lengthy and tiresome process. Due to diversity in terms of payment processes, the payments are generally received through different bank accounts, areas, or different payment methods. In such cases, it becomes difficult for the finance managers to understand when or from where a particular payment has arrived. Such uncertainties often lead to searching for invoices that have already been paid, calling customers incessantly even if the payment has been done, or blocking future orders.
- Absence of a fully integrated end-to-end Order to Cash ProcessOrder to Cash is a cross functional process that constitutes of responsibilities that is distributed across multiple departments across an organization (Marketing, Sales, Pricing, Customer Service,Logistics, Production, etc.). Not having an integrated process in such cases often leads to constant passing over of responsibilities across the entire cycle. This in return, makes the entire process ineffective and does not lead to any progress.
- High Costs of OperationThe Order to Cash process has the largest number of FTEs in the finance organization, given it’s sheer large process cycle and its key impact on the working capital of a company. Such processes usually take up a lot of time and resources. This generally results in high costs when it comes to maintenance.
- High Costs of Dispute ResolutionCollections analysts spend multiple hours asking for payments when a particular order that is supposed to be delivered to the customer either did not arrive, or was incorrect, or the order turned out to be unsatisfactory. To resolve such disputes, necessary documents and order details must be taken from the customer, and carrier services and post resolution from the company, should be transferred back to the customer immediately. However, such dispute resolutions require an additional cost, which hampers the company financially.
Current Landscape of the Order to Cash Process
- Shared ServicesShared services is basically defined as the combination of business operations which are then used by various departments of a company. Most of the Order to Cash Process, traditionally is siloed, which results in unforeseen issues that generally affect the overall process. Collaboration within different teams and departments across the company is the key to break down such silos. With the help of shared services, one can constantly focus on what the customer needs are, and drive towards innovation. It also helps measure the performance continuously across the company to ensure that it delivers value to both the customers and the company at a lower cost.
- 3rd Party ServicesConsidering the fact that the Order to Cash processes affects not only the general and administrative processes, but also the amount of goods that is sold, the overall efficiency of a working capital, Day Sales inventory and Revenue, an efficient shared service system should be present in the company. However, it is not always possible for a company to implement such systems directly. Hence, taking advantage of 3rd Party services could definitely act as a catalyst to the business transformation, leading to a ripple effect that is felt even at the highest levels of organization.
- AutomationIn the ever long process of Order to Cash, automation plays a major role in improving the efficiency at a large scale. A comprehensive automation strategy impacts majorly in every step of the Order to Cash process, right from processing the orders to automating invoicing and payment collections. These are able to monitor real-time metrics and adjust themselves automatically as per predefined rules. Most importantly, with automation implemented in multiple organisations, there is a drastic reduction in the number of FTEs that were involved in the Order to Cash process, leading them to be allocated to more value-added tasks such as credit management, helping the company in boosting its overall growth. Automation leads to less human intervention, which results in increased accuracy. As a result, financial benefits are achieved sooner, making way for a faster return on investment.
- Advanced AnalyticsWhile Order to Cash is a process that is faced with challenges due to it’s way of operations and inefficient processes, advanced analytics in the present receivables landscape tends to play a major role along with automation. It utilizes the data that is available across various platforms and analyses the data to predict risks, identify any sorts of anomalies in the processes, reduce customer fraud, and so on.
- Anomaly DetectionWith most of the focus in Order to Cash Process is towards the “process” itself, analysts generally are unable to pay heed and analyse if there is any sort of issue that is detected within the process. In such cases, with the help of automation and artificial intelligence, the transaction flow is checked upstream, and any sort of anomalies along the way, if found is checked upon and sent for resolution as soon as possible.
Current trends in the Order to Cash Processes
With the world constantly changing in response to the current trends, the realm of financial sector stands no different. With Automation on the rise, the tasks that are assigned with regard to the Order to Cash process significantly keeps on changing.
- Shift from Function based to Process Based (End-to-End) solutions Over the years, the process of Order to Cash had focused only on a few basic functions (eg. cash applications, credit and collections processes, etc.). However, with the emerging market trends, there has been an advent in the rise of developing “end-to-end” process systems that have integrated receivables solutions across the entire Order to Cash process system. Such solutions have a higher efficiency rate when it comes to transaction, processing and as well as dispute resolution, whether it is in order entry, pricing, billing, or in credit or in collections. With the increased amount of transparency that the service provider provides within its end-to-end services, companies tend to receive more interested buyers who purchase a particular product with increased confidence.
- Change of buyer interest from Offshore capabilities to Transformation as per their needs.While most of the service providers have established offshore centres with technology necessary to cater to support customer requirements, some companies, have combined the tools and methodologies that involve deep O2C capabilities with added deliverables in order to provide services that are not only efficient, but are transformed as per the customer’s requirements.
- Shift from Customized solutions to Integrated SolutionsWith the increasing trend of outsourcing solutions for Order to Cash, service providers try to push in Integrated solutions to the customer that include tools and methods which require lower costs for implementation and maintenance.
- Focus on Cash Flow With the Order to Cash processes being automated at a rapid pace, companies are more focused on improving their net cash flow. With the increased capabilities of end-to-end solutions by service providers, the cash flow benefits have increased significantly and are very much prominent, to a point where they are able to adapt as per the changes and improvements that are provided by the service providers.
Future Scope of Order To Cash
- Big Data and AIThe predictive capabilities of artificial intelligence combined with Big Data tends to give valuable information, that turns out to be a boon for multiple investors and debtors. Using natural language processing and self-learning algorithms, one can easily improve their own data analysis. It also helps them forecast payments and provides methods to improve upon existing business ideas.
- Internet of ThingsIoT is a new age process that aims to provide connectivity to various physical objects so that there is an exchange of information among them. The data that is collected from the source is transmitted in real-time, preventing any sort of bottlenecks along the way. In the Order to Cash cycle, IoT can play a crucial role, when it comes to placing orders, delivery and issuing invoices for the same. This significantly reduces the amount of work that is imparted upon, such as order processing and invoicing.
- RoboticsWith the Robotic Process Automation (RPA) already making waves in the current Accounts Receivables landscape, Implementing bots for complete automation of the Order to Cash process would ease up a lot of tasks involved. Moreover, tasks that were handled by human resources could be automated using bots assigned for that specific purpose, reducing unnecessary delays in processing and provisions for errors.
The Order to Cash process is considered as a financial backbone for any organization. A company’s economic growth directly correlates to how efficient their order to cash process is. With the constant change in technology, there has been a multitude of changes that have significantly decreased the amount of workload that used to be present when done manually. However, it is upon the company to leverage the benefits of such technologies and adapt to the modern methodologies, in order to streamline this cycle and optimize the process to gain financially.