How to optimize the Order-to-Cash (O2C) process

Since this mega-process touches just about every part of a business — order management, supply chain, finance — the slightest chink can have wide-reaching ramifications for cash flow, supplier relationships and customer experience. This also makes it one of the best places to unlock business value.

As Alejandra Quinones, Product Marketing Manager Supply Chain and Inventory Management at Celonis, says: “Improving the speed and accuracy of key parts of the Order-to-Cash process has domino effects for the entire business. But businesses can be intimidated or overwhelmed by the scale of the process, or assume that optimizing it requires wholesale ‘rip and replace’ of how they operate.”

In reality, it’s about breaking it down into all the interconnected processes — and the endless opportunities hiding within them. Here are the three key areas of Order-to-Cash where you can find them, including common O2C challenges to target.

1. Order management

Blocks and rejected orders

Let’s begin at the beginning: the part of the O2C process where the customer order comes in. Or doesn’t, as the case may be. It can be the start and end if blocks are improperly applied or orders are unnecessarily rejected.

Order limits can automatically block orders past a certain value, even if the customer is a reputable partner who always makes timely payments. Or a company may limit its exposure to debt and cash reconciliation issues by mandating credit checks on new clients. A sensible precaution, but an inefficient credit management process can make the check so long that potential customers take their business elsewhere. Delays also arise from the time it takes to discover these blocks have been imposed.

Two things can help. First, ensuring master data is up to date, so blocks aren’t applied unnecessarily. Second, visibility over the Order-to-Cash process, so blocks are easier to discover, investigate and remove. Combined, this helps order management processes run more seamlessly, while preventing lost revenue.

• Check out how consumer giant Reckitt reaped the rewards of this approach to resolving their order blocks

Order entry

Basic errors in order entry — quantities and delivery dates, for example — can result in anything from outright rejection to long delays caused by manual correction.

However, many businesses still maintain analog operations, taking orders by phone, fax and even emails with attachments that must be printed off. This all impacts the O2C process and cash cycle by lengthening the time for orders to be entered and actioned.

The solution is automated order entry. Instead of costly, time-consuming, error-prone human intervention, intelligent automation reduces rework and unnecessary touches in the order cycle, so the order can move on to the fulfillment stage.

2. Fulfillment

Stockouts

Order fulfillment and Inventory Management present a minefield of potential issues for the Order-to-Cash process. Without proper planning parameters, such as safety stock and reorder points, supplier lead times, and production lead times, stockouts are never far away. Blind spots and order processing errors can also create issues whereby a customer order is accepted despite items being out of stock or unavailable in sufficient quantity. At the very least, explanations must then be given to a disgruntled customer, if not a compensatory discount on top.

These order fulfillment challenges highlight the importance of business process visibility. With it, teams can process orders with accurate stock information and can correct out-of-date planning parameters.

Better still, finding opportunities to automate Inventory Management processes can help teams implement a higher level of accuracy and speed, adding another preventative step against stockouts and further supporting on-time, in-full delivery (OTIF).

Delayed orders

It goes without saying that no customer appreciates a delayed order. Suffer one, and they’ll likely be dissuaded from a future purchase. Contracts also frequently impose penalties for late delivery.

Without visibility across the Order-to-Cash process, however, delayed orders can slip under the radar and it can be hard to identify root causes. The ability to view all the dependencies affecting order delivery, including upstream supply, allows businesses to act on bottlenecks causing delays, or prioritize orders more strategically. All the while, this more accurate and up-to-date insight enables businesses to keep customers informed.

• Take a look at how GE Healthcare minimized fulfillment disruption to improve on-time delivery

3. Billing

Invoicing

At the back end of the Order-to-Cash process sits Accounts Receivable, which has an equally important role in O2C performance. One common challenge here is invoices being sent out with incorrect or less-advantageous payment terms.

This can stem from siloed teams or sub-optimal payment processing that means crucial contract information is lost or miscommunicated. Automating invoicing and data processes decreases the chance of errors and manual intervention down the line. And with a comprehensive picture of the Order-to-Cash process, businesses can align teams so no changed payment terms or episode of non-compliance goes undetected.

Underpayments

The sheer volume of different payment terms, customers and balances to keep track of is an Order-to-Cash challenge in itself. It can manifest in situations like customers taking cash discounts despite having paid later than terms dictate.

Streamlining outstanding customer balances and proactively tackling underpayments requires a central overview of all the processes and data involved. This clarity also makes it more obvious where repetitive payment collection processes such as dunning outreach can be automated, simplifying invoicing tasks, improving customer payment accuracy, and removing scope for human error.

Unbilled orders

What about when orders aren’t billed for, or when billing consistently lags behind fulfillment? Reasons vary, spanning from a lack of integration between systems to disconnected processes across the fulfillment and finance teams. As with delayed orders, these Order Management problems can easily get masked with so many invoices and payment reminders to coordinate. Even if an Accounts Receivable discrepancy is identified, tracing the relevant unbilled order can be immensely time-consuming at best.

Businesses can prevent unbilled orders from eroding their cash flow by gaining transparency over their Accounts Receivable processes. This makes it easier for AR teams to locate unbilled orders, but they can also implement automations to do that for them or serve proactive reminders to improve on-time billing going forward.

• Find out how Kraft Heinz became more proactive at AR collection and reduced overdue payments by 30%