Order to Cash Business Process: What is it and How do You Optimize its Performance?

Order-to-cash, or O2C, is a critical and complex process that is a part of the larger finance and accounting function. Often, this process passes below the radar of people tasked with optimizing the F&A, which can have a detrimental impact on business growth.

Many stakeholders think it is a mundane, repetitive process, thus taking it for granted thinking there simply cannot be a scope for improvement or optimization. This is until a business disruption, market shock, micro/macroeconomic event, or even a Black Swan event like the pandemic that shakes them out of their misconceived notion and forces them to address the inefficiencies of their order-to-cash business process.

What is the Order to Cash Process?

The order-to-cash process, also known as order to order-to-cash cycle, is a set of operations or activities that include receiving a customer’s request for an order or service right up to fulfilling these requests, and everything in between.

This is a purely finance-related aspect of the sales cycle and consists of the length and breadth of sales from shipping the items to the customer to creating invoices, collecting the payment from the customers, and creating reports that note down every transaction that made up the O2C cycle. As can be imagined from the various activities that are a part of O2C, you cannot take it lightly.

What Does an Order to Cash Process Mean for a Business?

The importance of an order to cash business process can be gauged from the fact that it impacts your business in many different ways and at all levels. It affects your revenue and helps you take the necessary steps to improve customer experience and, over the long run, improve customer retention rates.

A drill down into the O2C cycle lets you know whether your invoicing process is performing optimally, whether accounts receivables are processed promptly, whether customer queries are being managed in good time, and much more.

Unlocking Potential of the Order to Cash Process

The challenges with O2C stem from its complexities and differ from one business to another across different domains. For example, in the case of a sale, the sale can be a direct sale or an RFP and, therefore, needs to be managed differently. There can also be a case wherein a company works through channel partners wherein the sale is managed by the partner rather than the company itself, or a particular transaction might be an international transaction instead of a domestic one. There also might be some companies delivering an omnichannel experience to their customers, making sales through online channels and brick-and-mortar outlets. Every transaction, therefore needs to be tracked and managed differently, but optimally.

It is, therefore, essential to kickstart an O2C optimization drive if you wish to balance customer satisfaction with profit maximization, which are the two important parameters that help you evaluate whether O2C optimization has worked or not. Your order to cash business process optimization action plan should have the following components:

• Evaluating Challenges

What’s wrong with your O2C process? Can the wrongs be corrected and how should these be corrected? These are important questions to ask because we are witnessing a  growing positive sentiment amongst businesses, with the Business Confidence Index for Q2 2023 standing at 6.1 compared to 2.5 last quarter.

This means companies like yours will be looking at exploiting new growth opportunities, and your order-to-cash business process must be configured to address the growing needs of your business. One of the key challenges companies typically identify is the inability to scale their O2C function quickly. The reasons for this are manifold but a key reason is the shortage of accountants and the high costs of scaling their in-house team of accountants.

Another problem could be the focus on cost optimization, wherein businesses want to do more with less. Unfortunately, the accounting function can get a little costly, considering the rising salaries in this domain and your company competing with the high salaries paid by the Big 4.

• The Technology Component

Deploying the right technologies or software helps streamline critical finance processes, including O2C, and enables you to maximize their potential and tangible deliverables. The problem is one of investment; there are recurring costs involved with a technology investment and also the fact that technologies are evolving all the time. This evolution becomes an expensive proposition for companies. This is why it is essential to think strategically in terms of tech-led accounting innovation.

RELATED CASE STUDY: Optimizing O2C Process for a Recruitment Giant through Bank Download Automation

As a business, it is natural to think about tech-led process transformation from a cost perspective. You might think of newer ways to build efficiencies without investing more in technology. However, you might miss the bus if you don’t invest in tech. So, you must ideally focus on leveraging the best technology without incurring associated overheads. The answer lies in outsourcing. Read on.

• Order to Cash Process Outsourcing

When we hear the word ‘outsourcing,’ we immediately associate it with words like ‘cheap’, ‘affordable,’ and more along the same lines. Ideally, we should think of outsourcing as a strategic initiative that becomes a growth driver for your business. This is true in the case of order-to-cash process outsourcing as well. While it is an affordable option that helps you benefit from cost arbitrage, the benefits of outsourcing go much beyond affordability.

Order to cash outsourcing services enable you to address your business’s scalability and technology challenges and align with its cost optimization goals. You can access a team of O2C experts through flexible engagement models, allowing you to scale the team up or down seasonally or as per business growth. More importantly, it helps you achieve O2C process optimization as the additions to your team do not have to go through a long-winded training process, or you do not have to make quality concessions considering their inexperience. Your team is experienced in managing every aspect of the O2C cycle.

Another element of outsourcing is that a reputed provider works with the latest technology and leverages the most advanced accounting infrastructure. Your business benefits without incurring extra expenses and thus reduces its technical debt, cost-effectively.

RELATED CASE STUDY: 5 Order-to-Cash Process Outsourcing Red Flags

Working with the Right Provider

The easiest way to optimize your O2C cycle is to work with a reputed and expert order-to-cash process outsourcing services provider. But this is easier said than done. You need to search for a provider that can reduce costs, optimize processes underpinned by technology and ensure that you are able to future proof your O2C cycle so that your internal team can focus on high-value accounting functions.

QX can bring about O2C transformation by delivering outsourcing expertise across all core activities, including accounts receivable, credit control, customer helpdesk, billing, customer master management, and month-end closing. Get in touch with experts to start your O2C transformation journey.

Originally published Sep 06, 2023 12:09:54, updated Oct 04 2024

Topics: Order-to-cash cycle, Process optimisation