Identifying and Mitigating Risks in the O2C Cycle

Keeping your business’s cash flow in the green and your revenue stable hinges on how well you manage the order to cash (O2C) cycle. It’s a key part of your finance and accounting operations, involving everything from credit control and accounts receivable to billing and reporting. Getting these elements right is crucial for your company’s overall health. 

But let’s face it, every step of the O2C cycle carries its risks—risks that can slow down your operations, delay payments, and even frustrate your customers. In this blog, we’re going to walk through some proven strategies to keep those order-to-cash risks at bay. You’ll discover how to improve billing accuracy, speed up your payment processes, and smooth out your entire financial operation. Think of it as fine-tuning your engine so that every part works better together, ensuring money flows in as planned and your customer interactions stay positive. 

What are the Risks of O2C? 

Many businesses suffer from financial stress due to external problems such as the pressures of an economic downturn, flagging demand for products and services, and more. However, this stress often results from internal issues, one of which is a weak O2C process that doesn’t allow them to maintain a healthy cash flow. 

Let’s take a look at some of the key risks in order-to-cash process: 

1) Manual Invoicing 

The real challenge with invoicing is that different customers have different invoicing preferences, and therefore, businesses see sense in creating such custom invoices manually rather than going for automation. For example, an enterprise business might prefer that invoices be prepared in a specific format, which are then uploaded to their own company finance and accounting portals; on the other hand, some other businesses might prefer a hard copy and a digital copy of the invoice.  

Meeting such demands manually sounds like the right approach, but this process is risky because it is error-prone and time-consuming, which can leave very little time for some of the more strategic O2C tasks. 

2) Process Intricacies 

Managing an end to end order-to-cash process is a complex exercise composed of different tasks connected with one another. Therefore, there must be a well-established synergy between the teams handling different tasks such as credit management, order placement and management, customer billing and invoicing, payment collection, payment processing, cash application, deduction management, reporting, order fulfilment and much more.  

Each task has its own complexities, and therefore, these intricacies can only work if the different processes are standardised and monitored to ensure they do not have issues and issues, if any, are sorted out quickly. 

3) Reactive, Rather Proactive Collections 

Imagine a scenario wherein you have to choose between contacting ten customers to either follow up on pending payments or just sending a timely reminder for an upcoming payment. In such cases, you might have to prioritise outreach, but what if you are reaching out to customers with a history of paying on time or on a specific date? 

On the other hand, you miss out on talking to risky customers who have a history of paying late. In such cases, you are building inefficiencies in the collection process because of incomplete visibility into your at-risk customers as well as financially sound customers. This makes you take a reactive approach rather than optimising a proactive approach towards collections. 

4) Legacy Technologies not Delivering ROI 

Technology evolves rapidly, but companies might not have the capacity or the vision to make sustained investments in technology to keep harnessing the power of advanced technology to support their finance and accounting functions. This results in technology gaps within the end to end order to cash process framework, which impacts tech ROI. 

While companies might choose to invest in automation, there might still be certain repetitive processes, such as ‘sending payment follow-up emails’, which will be manual. Also, technology needs to break down silos so that there is more awareness about the state of the O2C cycle. 

For example, once the payment is received, it needs to be immediately matched with the open invoice, which is then closed in case of a match or a dispute immediately opened with the customer. Traditional technologies might be unable to streamline this process, leading to excessive delays, long dispute-resolution processes, and unhealthy cash flows. 

Ready to see how technology can transform your Order to Cash process? Read our latest blog on harnessing technology in O2C outsourcing here. 

Benefits of Maximising the Potential of End-to-End Order-to-Cash Process 

If you are able to maximise the potential of end to end order to cash process, your business can experience the following benefits: 

1) Strong Cash Flow 

UK businesses are troubled by the slowing down of the UK economy, and in such a scenario, it is important to have good cash reserves. But for this to happen, optimising cash flow should be imperative for the business. This ensures a healthy cash flow in the normal course of events and excess cash flow to combat any economic downturn. This helps businesses make sustained investments in improving business processes, whether in people or technology. 

2) Financial Information Accuracy 

With 47% of data analytics leaders in the UK not trusting data, it is imperative that various business processes leverage reliable data to improve decision-making and drive efficiency. Accurate reporting drives an efficient O2C cycle, which helps facilitate confident decision-making. 

3) Real-Time Data Availability 

Data should be accurate, but this data should also be available at all times to all the stakeholders. An optimised O2C cycle is backed by data centralisation, where a centralised data repository is leveraged by key stakeholders for timely reporting and to gain critical insights. More importantly, by integrating automation into the O2C process, data is updated in real-time and can also be accessed in a timely manner to deliver holistic and granular insights into the financial health of the business. 

4) Process Standardisation 

We are not talking about ordinary standards but Lean Six Sigma quality standards and the ability of the process to meet key industry standards and regulations. The seamless coming together of people, processes, and platforms ensures better quality, breaking down of siloed workflows, and ensures a consistent O2C framework that is purpose-built for optimising its various sub-processes. This consistency can be scaled easily and on-demand. 

5) Customer Experience 

Think of an unsatisfied customer owing to invoicing issues. Either the invoices were not sent in time, reminders were sent late, or there were issues with the information in the invoice. In all such cases, you are not just staring at potentially delayed payments but also irate customers who can slowly lose trust in your business. 

On the other hand, a customer-oriented O2C process that offers a wealth of customer-facing features such as e-invoices, multiple payment options, immediate conflict resolution, and more is guaranteed to boost customer satisfaction, which in turn results in brand loyalty, driving customer retention and acquisition. 

The Answer Lies in Order to Cash Process Outsourcing 

Looking for a straightforward way to cut down the risks in your order to cash cycle? Order-to-cash outsourcing services might just be the game-changer you need. When you go this route, you’re not just outsourcing tasks; you’re tapping into a whole ecosystem of expertise and advanced tech. Imagine having the latest in automation and AI working to speed up your processes and make them more reliable—all while you get to focus on the big picture. 

With QX Global Group, it’s not just about outsourcing; it’s about partnering. We’re here to help you strengthen your cash flow and build lasting, meaningful relationships with your customers. This isn’t just about better numbers; it’s about setting your business up for sustained success. 

Originally published May 30, 2024 09:05:32, updated Oct 17 2024

Topics: Finance and Accounting Outsourcing Services, Order-to-cash cycle