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Order to Cash Process: What It Is and A Step-by-Step Guide

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Managing risk is critical for business success. The faster a company grows, the greater risk in vital areas like credit management, customer acquisition, cash flow, and client satisfaction. It also means you need a firm handle on the order to cash process.

What is the Order to Cash Process?

The order to cash process (also called O2C or OTC) refers to the entirety of a company’s ordering system. It starts the moment a customer places an order and ends when an invoice is paid and settled. 

It’s a set of business processes to manage everything that is time-related to some function of marketing, sales, or branding. O2C will define your success as a company and your relationship with customers. 

Many believe the order to cash cycle time is complete when a customer pays the bill, but several important steps occur afterward. Activity data must be recorded throughout the O2C cycle and analyzed to identify opportunities for optimization and improvement. 

Why is the Order to Cash Process Important?

There are many reasons why a business needs to optimize its order processing system. O2C activities impact an organization across the board, including everything from supply chain management to labor and inventory. Bottlenecks with customer orders can cause headaches in completely separate business units. 

Accounts Receivable

A poor order to cash process means invoices typically aren’t collected on time. Accounts receivable and the invoicing system during O2C determine a company’s cash inflows. 

Any delays in collection will complicate accounts payable, payroll, any potential acquisitions, the general ledger, and other problems related to liquidity. 


Managing a consistent and reliable O2C process demonstrates a company knows how to handle business. You need to excel at every function, including sales, marketing, manufacturing, fulfillment, tech management, accounting, and shipping (to name a few).


Running an efficient order to cash process means a company can transform raw goods into a salable product (to be received and billed to the customer) much faster. 

Streamlining the workflows of the O2C process means less cash will be tied up in the various stages of inventory. Subsequently, this provides the extra resources needed to further invest in growth and prevail over the competition. It can also help to keep pricing low.

The Main Steps in the Order to Cash Process

The order to cash process is accomplished in eight separate steps:

  • Order Management
  • Credit Management
  • Fulfillment
  • Shipping
  • Invoicing
  • Accounts Receivable (AR)
  • Payment Collections
  • Data Management and Reporting

Managing the Orders

Order management is the first step in the order to cash process and it starts the second a customer places an order. As soon as the purchase is confirmed, the business is responsible for everything that surrounds order management, including (but not limited to):

  • Ecommerce platforms
  • Email to the sales department
  • Notifying sales rep in person
  • Efficient order entry

When you introduce automation into the O2C process, instant notifications set off a series of actions in other departments that will keep every team on top of each order. 

A recent study by IBM found that organizations that adopted the best-in-class O2C practices were 81% more effective at order management than those that did not. 

In this first step, all new orders should be organized properly and notify any relevant parties to ensure timely and accurate fulfillment. 

Managing Credit

Due diligence on the front end of your O2C process can save time and minimize issues when it comes time to collect payment. In orders where credit is applicable, first-time customers should always be sent through an approval process.

Financial software with a robust order management system will have mechanisms in place to automate credit approval. In cases that require a more thorough review, staff can be notified. In all other instances, the order will be digitally transmitted to the fulfillment stage. 

Additionally, any returning customers that were denied approval the first time around, should be treated just like new clients and put through the approval process again. Things can change and credit can go up and down depending on circumstances. 

Automating the credit management process makes it easier for accounts receivable. It also ensures the business only issues credit to worthy customers. This all equates to much less work once it comes time to collect. 

Order Fulfillment

An important part of the fulfillment process is automated inventory management. In order to avoid accepting orders that cannot be completed, inventory counts need to be updated on the sales side, in real-time. 

If an out-of-stock order slips through, it can be flagged immediately, This keeps the lines of communication wide open and helps avoid any billing issues or unhappy customers.

The entire order sent in for fulfillment should be in a standardized digital format and have all of the information needed for staff to clearly decipher the details. Paper orders and those from outdated systems can cause issues like bottlenecks and costly clarifications.

Order Shipping

The success of order shipping all comes down to logistics. That’s why the shipping portion of the O2C system must be audited on a regular basis. This is to ensure high performance standards and streamlined workflow.

All data from order and fulfillment management functions must be immediately updated in the ERP system. This is so the team can better plan shipments around carrier pickup schedules and get orders to customers on a timely basis.

Customer Invoicing

Delays and inaccuracies with invoicing can seriously snowball and lead to cash problems that can disrupt the entire organization. When accurate invoices are sent out on a reliable timeline, finance teams can more effectively forecast cash flows and better plan for expenses.

A recent study by the Aberdeen Group found that companies with stellar O2C performance only require manual input for 16.2% of invoices. This is compared to nearly 80% for those that scored in the bottom tier.

Invoices should have the correct information so they can be sent without delay. This includes data points like:

  • Order specifics
  • Costs
  • Credit and payment terms
  • Order and shipping date
  • Customer data
  • Data

The more data that is input, the easier it is to automate the entire workflow.

Accounts Receivable

Prior to becoming past due, an automated accounting system will flag outstanding invoices at pre-set times. An AR representative can then review these notifications to determine if there are any obvious errors.

One example of using automation to ensure the O2C process is running smoothly is sending out payment reminders after two weeks. The system will automatically determine which invoices are late, then trigger a reminder and invoice review to move things along more quickly. 

If an invoice error is detected, the AR rep must have a way to quickly review the information in the system, find out where the breakdown occurred, and send out a revised invoice as soon as possible.

Payment Collections

The first defense against any sort of backlog is to ensure that AR reps document all customer payments within a specific timeframe. A company runs into a lot of issues when payments delivered by customers are not updated and the account is still marked as “unpaid.” 

Collecting on an invoice that is already paid can cause friction with customers. It makes a business look disorganized and can lead to inaccurate cash estimates. This can cause finance teams to make incorrect predictions about cash deficits.

When an invoice does lapse into an overdue period, and it’s justified, the account must be flagged and their credit put on hold. If the customer tries to place another order, the automated system will alert them that payment needs to be sent first.

All past due accounts should be regularly reviewed on a trial balance. This will help keep bad debt forecasting updated and help to determine the next step (like sending it to a collection agency).

Reporting and Data Management

Integrated accounting programs can track performance data across every step of the order to cash process. Monitoring and analyzing this data can help a business see the bigger picture and determine what needs to be tweaked to streamline their O2C system.

The stability of the O2C process affects every workflow in the organization. This includes things like:

  • Customer and vendor relationships
  • The length of the sales cycle
  • Onboarding and training
  • Customer service functions
  • Forecasting and cash flow

Management can also use O2C metrics to determine if slowdowns in one area will adversely affect another. Since the order to cash process is highly interdependent, even tiny inefficiencies in one function can result in costly problems elsewhere. 

Optimizing the Order to Cash Cycle

Optimizing the O2C process will eliminate inefficiencies and can result in more working capital, fewer bottlenecks, and a higher rate of customer satisfaction. It can also reduce fulfillment time. 

The best way to optimize this system is to find the right accounting software that will automate processes. This platform should give all parties real-time access to the same data, to keep everyone on the same page. The digitization of invoicing and data management also helps to move the process along more efficiently. 

Getting an ideal result from your order to cash process requires a fusion of process management, technology, and interdependent cooperation.  

Challenges to the O2C Process

While the process may seem straightforward, it involves a lot of moving parts. Failure in one step can result in a breakdown in the cycle. The set of business processes involved requires a great deal of attention and all departments working together. Some things to watch out for are: 

  • Inaccurate sales orders
  • Time-consuming manual invoices
  • Dissatisfied Customers 
  • Delays in Collection
  • Data security

Inaccurate orders mean that at one point in the process, the order must be redone. This will cost you precious time. Manual invoicing also takes time and has a greater potential for errors. If all of this leads to wasted time, there will be a delay in collections. The delay can complicate other business processes like accounts payable, payroll, and acquisitions. 

Your company also should keep an eye on customer satisfaction. Any hiccups in the O2C process can diminish the customer experience. To keep an eye on this, use customer relationship management (CRM) software to manage your company’s relationship with its customers. In the same vein, data breaches can also lead to dissatisfied customers, so make sure to take your retail cybersecurity seriously. 

OTC Process Implementation Best Practices

Collections environments that exhibit best practices share some common characteristics. Teams have the ability to segregate receivables that are risk-based. Sophisticated algorithms can take into account data like:

  • Historical performance
  • Payment behavior patterns
  • Degradation of performance 
  • Credit bureau data
  • Trade data (which is blended and weighted)

This helps to effectively optimize collections, dispute resolution, and credit resource efficacy based on calling priorities and activity. The more this process is automated, the easier it is to plan. Automating the O2C process helps to minimize the time required to identify high-value targets and prepare for the day.

It can be difficult to refine an order to cash process, so here are a few tips:

Establish Standards

Establishing a set of standards creates consistency and a guidebook for staff. The more you do something the same way, the better teams get at implementing the process. This also helps to better identify any cogs in your wheels or parts of the system malfunctioning. 

Use Technology

The use of emerging technology is critical for a fully functioning order to cash process. Not only does it reduce errors, it helps to integrate all business processes into a central hub. This ensures all teams are in constant communication and updating data in real-time. 

The use of O2C technology also saves a bunch of money. A recent study by IBM found that companies who use AI and other emerging technologies saved an average of 22% per invoice during processing.

Implementing these technologies will also save you money. IBM found that companies that used AI and other emergent technologies saved 22% per invoice

Optimize Data

Teams must have a way to segregate clean and dirty receivables to identify what needs to be worked. “Clean receivables” is one that has no disputes, issues, deductions, or short-pay. It’s due today and there is no reason why payment should not have been received.

Regularly Monitor and Analyze

Much like any modern process, a business must take the time to collect metrics and analyze the performance of its O2C program. Technology moves exponentially and is highly iterative. What works today isn’t guaranteed to be the best solution tomorrow. There is also always a chance for improvement. 

It’s important to create space for teams to suggest ways to improve the order to cash process. Project management software can also assist a business to monitor how the O2C system is functioning at the project level.

The idea is to use reporting and analytics to streamline O2C sub-processes and critical steps, to deliver the biggest impact on cash flow. This applies not only to resource activity/productivity, but electronic CTAs (calls-to-action) and automated communication.

Establish Self Service Portals

Another way to optimize the O2C cycle is to create opportunities for customers and vendors to service themselves. This frees up accounts payable and accounts receivable from answering simple queries or sending copies of invoices. 

A client portal provides 7/24/365 assistance and in some cases, can represent up to 60% of inbound call requests and outreach. Customers can also create personalized statements, initiate a dispute, find out when a payment is due, make a payment directly, and request contact all in a centralized spot. 

Introducing customers to self-service is simple. Simply embed a link in your next email marketing campaign and the rest is history!

Summing it Up

For most companies, accounts receivable is one of the largest assets on the balance sheet. How can you effectively convert this asset to cash while minimizing bad debt? The answer lies in focusing on the order to cash process.

Successful optimization and management of the order to cash process helps a company consistently deliver value to their customers and receive payments on time. 

The introduction of emerging technologies ensures the process is streamlined at the digital level. This frees up resources so teams can focus on the most important tasks of all: enhancing the customer experience and leveraging business growth.

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