Order to Cash: What It Is & Why You Should Care

Sarah Leung
April 26, 2018

While we’ve already discussed metrics like fill rate and visit to order time on the blog, we haven’t yet talked about Order to Cash––the term that encompasses your end-to-end order processing system. From opportunity creation to order taking to billing, Order to Cash (O2C or OTC) isn’t so much a metric as it is a set of processes. However, we’re including Order to Cash in our Wholesale Metrics series because it’s essential to look at it with the same analytical eye with which you’d assess your fill rate or visit to order time. Another way to look at Order to Cash is to think of it as a timeline. By shortening that timeline and streamlining your entire procedure for processing, invoicing, and collecting payment for an order, you’ll speed up cash flow, cut costs, and serve your customers better in the long run. The first step towards streamlining this process is to look for inefficiencies in your current system. This will often require a cross-departmental kind of analysis, from sales and accounting to inventory and logistics. Understandably, this can be overwhelming for any wholesale business. To break things down, there are basically two major segments to look at in more detail:

  1. The Order Management Process: how an order is written, submitted for processing, and fulfilled
  2. The Bill-to-Cash Process: how payment is invoiced and received

Order to Cash Part 1: The Order Management Process

You’ll know immediately if your order management process is not working properly, because there will be all sorts of day-to-day problems getting in your way––whether it’s customers calling in about late shipments or your warehouses accidentally shipping the incorrect items. These may seem to be small issues when looked at as isolated incidents, but collectively, they can add up to high costs and damaged customer relationships. Here are a few of the more common inefficiencies that many wholesalers deal with in this section of the process.

Order Management Inefficiencies

  • Order re-entry and redundancy
  • Order submission delays
  • Complexities stemming from legacy software systems and manual processes
  • Order fulfillment errors due to poor handwriting, data entry errors, etc.
  • Lack of inventory information during the sales process, resulting in backorders

Streamlining this part of the process and eliminating these inefficiencies is all about getting to the root of the problem: outdated processes like writing orders down on paper, sending them via fax, and having a team dedicated to doing data entry. Here are some best practices to help this segment of the order-to-cash process run faster.

Order Management Best Practices

  • Automate systems to minimize the need for manual intervention
  • Eliminate the need for order re-entry with a digital order writing solution
  • Optimize processes across all functions, rather than within organizational silos. For instance, integrate your digital order writing solution with your back office system or ERP
  • Remove legacy software systems and complex workarounds that slow down the fulfillment process
  • Provide sales reps with inventory information and other customer intelligence during the sales process, so that they can sell more strategically and avoid backorders

Order to Cash Part 2: The Bill-to-Cash Process

For a business of any size and SMBs in particular, increasing cash flow is imperative to not just business success, but to making payroll and meeting expenses. Many smaller wholesalers, however, still struggle with delays in the bill-to-cash process.

Bill-to-Cash Inefficiencies

  • Complex, customer-specific payment terms and a high volume of non-standard terms
  • Unauthorized deductions and rogue sales practices
  • Quote errors, billing inaccuracies, and customer disputes
  • Invoicing delays and inefficient invoice tracking
  • Multiple data sources not integrated with one another (ERP, CRM, Sales Order Management systems, and other accounting and logistics software)

Similar to the order processing segment above, improving the bill-to-cash process can be done by eliminating manual processing. Here are a few best practices to shorten your bill-to-cash process.

Bill-to-Cash Best Practices

  • During the ordering process, utilize a sales order management solution to automatically apply customer specific discounts and avoid quote errors
  • Maintain a single point of contact for each account to avoid confusion, miscommunication and customer disputes
  • Centralize and integrate invoicing/payment data
  • Transition from paper to electronic by automating your invoicing systems
  • Use real-time reporting/analytics to proactively resolve delinquent accounts (and improve financial decision-making and forecasting)
  • Implement a vendor portal to give vendors electronic access to invoices and the ability to pay online

Technology has a starring role to play in implementing these strategies and best practices. While many small businesses avoid new technology from fear of costs, effort, and change, these investments are necessary to remaining competitive. Speeding up the overall order to cash process means speeding up your cash flow, reducing costs, and running your business more efficiently overall. If you have any questions or comments about order to cash or anything else we’ve talked about here, let us know in the comments below.