Order To Cash Process: Taking orders and receiving money sounds like the things any business will love, but there is a huge gap between taking orders and actually receiving money in your bank account.
OTC Finance Processing (O2C) is an essential part of business success and also plays an important role in managing a company’s customer relationships. While many companies focus most of their resources on when the customer places an order, optimizing the OTC process can yield tremendous benefits that excite the entire company.
The good news is that various order to Cash features can be enhanced by using an integrated software solution. You can optimize your order to Cash process from start to finish to serve customers faster and more efficiently, minimize errors and delays, and ensure that performance data has the maximum impact on business.
Order to Cash (OTC or O2C) consists of a series of business processes in which customer requests for goods or services are received and executed.
This is a top-level term or context used by management to describe the financial component of customer sales. Other context-related business processes include lead marketing, payroll (P2P), provision of pensions, start-ups and maintenance and storage concepts.
In our connected and fast paced world, people are starting to expect smooth transactions. Now think about some of the most successful companies. Amazon, Uber, Flipkart. For the most part, they are good for simple user interaction.
Improving the order to cash process may be the key to their success. As a result, people now expect a seamless experience on both a personal and professional level.
Order to cash cycle in the company’s starts when the customer places an order. Anything prior to that time relates to some role in branding, marketing, or sales.
However, it is important to note that the branding, marketing and sales functions do not end once the customer places an order. However, your main activity is usually in the customer relationship phase, i.e. before the start of the OTC cycle.
The Order to cash cycle is important for companies to ensure smooth operations. Order to cash activities can affect supply chain management (SCM), inventory management, and the workforce required. Therefore, if difficulties arise in any of the O2C measures, the operation can be adversely affected or disrupted.
In addition, the company’s cash flow and working capital are determined by the O2C function. Delays in invoicing or collecting payments can stop any business process that needs to profit from expenses, such as: payroll.
Major ERP system providers offer Order to cash services such as order to cash cycle in Oracle, order to cash cycle in SAP. These frameworks can supplement the OTC cycle with related advances, for example, order and credit management, and data management.
Let us see in detail in this article. Before that let us see!
Order To Cash Process definition
Cash is a legal tender – currency or coins – which can be used to exchange goods, debt, or services. Sometimes this includes the value of assets that can easily be converted into cash as reported by a company.
Cash from operations?
Cash flow operations activities is a part of the company’s cash flow statement that represents the amount of money that the company has generated (or used) from doing its business over a certain period of time. Operational activities include sales generation, fee payment and working capital financing. It is calculated by:
- Taking into account the company’s net income
- Taking into account non-monetary items
- Taking into account changes in working capital.
Cash flow Operations formulas
Although the exact formula is different for each company (depending on the line item in the income statement), there is an overall cash flow from the operating formula that can be used:
Cash flows operating activities = net income + non-monetary items + changes in working capital
What is the order to cash and OTC definition?
OTC meaning Order to Cash processing, refers to the company’s business processes for the entire order processing system. It is a series of business processes for management from sales orders to payments from customers.
Help you define your success as your company and your customer relationship. Optimizing this process eliminates inefficiencies and can yield observable benefits across the organization.
How does Order To Cash Process work?
Process mining basically takes data from your existing system and converts it into a complete process model. In practice, the data is retrieved from your ERP, BPM or CRM system, transformed and loaded into the process mining platform. The result is a complete overview of your process that provides insight and highlights irregularities.
Once you see how the process actually works, you can identify barriers and unwanted behavior in the process. This is known as process discovery. This draws attention to all the unnecessary steps in the O2C process. Its main goal is to eliminate these steps, save time and increase customer satisfaction.
After process customization and training for internal processes for owners, additional options such as automated process automation (RPA) can be checked.
Ideally, you should make minor adjustments, track the results, and move forward (or backward) from there. In short, the lessons learned from the excavation process mean that every decision regarding O2C is based on data.
Best Practices for Order to Cash
To optimize this process, you need to see what’s going on. Very often these are the result of ancient manual processes that leave a lot of room for errors.
By automating processes and linking information such as orders, inventory and invoicing, errors are reduced and information can be transferred from sales to shipping and invoicing without undue delay. Best practices include:
- Minimize manual intervention in the process
- Customers can order through the digital system
- Integrate information into processes for a smooth workflow
- Eliminate unnecessary hassle in the process
- Give agents the information they need to sell effectively that includes customer information, and inventory information.
Why is the order to cash cycle important?
The OTC cycle is an important part of your company’s business. This affects your sales, customer interactions, customer loyalty and overall growth. Here are some specific examples that illustrate the importance of cash cycle orders. By optimizing your cash cycle orders, you can:
- Optimize the buying process for your customers
- Reduce the time it takes to complete orders to your customers
- Minimize the need for customer support
- Run the job exactly when you first placed it
- Deliver jobs for customers on time
- Fast conversion of claims and claims for customers
- Avoid re-entering information and order forms
- Prove to your customers that your company is professional and values their time
- Avoid rearrangements and make sure you have enough products
- Improve data reporting and record accuracy over time
Now that you have a better understanding of the reasons why you should prioritize your OTC cycle, let’s take a look at the six steps in that process and what are the steps for each.
Order to cash process flow Process
The Order to cash process flow in the O2C cycle starts with a customer purchase and goes through the entire company order processing system.
The cycle consists of several sub-processes which include the following steps: O2C is fully developed and allows organizations to automatically go through the following steps in the ordering process:
- Customer orders are documented.
- An order has been fulfilled or a service is scheduled.
- The order is sent to the customer or the service is carried out.
- An invoice is created and sent to the customer for a claim.
- The customer sends the payments collected by the company.
- These payments are recorded in the ledger.
Which of the following best defines the order-to-cash cycle?
This is the time between the order and receipt of payment by the customer after submitting the order.
After the order to cash process flow cycle is complete, the organization should collect data on O2C performance to identify weaknesses or inefficiencies and identify areas for improvement. Let us see In detail step wise:
Order to cash cycle first step
The customer places an order: The cycle starts whenever a customer orders goods or services from your company. An effective order management system is essential to ensure there are no delays in placing orders or wasted time re-entering orders.
If your order management system is not functioning properly, you will run into many problems, such as: A customer calls to delay delivery or receive the wrong item. If you have an isolated incident here or there, it’s no big deal. However, if this happens frequently, you will pay a lot of money to fix the original order error and repair damaged customer relationships.
The second step: the order is fulfilled
At this point, your sales order can be delivered to your customer or a service appointment scheduled. In case of trouble free operation, your order execution is directly linked to your ordering software. This way, your picker knows exactly where all the goods are in the warehouse to prepare orders for delivery.
The third step the order has been sent
In this Order to cash cycle step the order is sent to the customer or the service order is completed. Some of these can be automated in delivery. For example, if someone marks an order as shipped to the system, the customer should automatically receive an email with tracking information so they know when to expect the item.
Fourth step – Invoice is generated and sent to the customer
If payment is not made at the time of order, an invoice must be generated and sent to the customer. Automation can simplify this process and reduce the chance of errors.
The fifth step – The customer pays the invoice
At this point, the customer sends payment for the invoice. Ideally there should be many choices, i.e. electronic transfers, credit or debit card payments. While they can offer the option of mailing a check or money order, this leaves room for delays in the process. The easier it is to get the customer to give you money, the quicker you will be paid.
Step six – Payments are recorded in the ledger
When you receive payment for an order, the accounts receivable department records it in a ledger.
In order to achieve a negative cash conversion cycle a firm would want to: increase the payment period and the stock is canceled.
What is SAP Order to Cash?
SAP Order to Cash orders are the point of integration between finance (FI) and sales (SD). This is also known as OTC or O2C. It is a business process in which sales are ordered by customers via shipping and invoicing.
This includes SO, delivery, issuance of goods (PGI) and invoicing to customers. The OTC process is a very important process in ERP (Enterprise Resource Planning) software. Both SAP OTC and Oracle major ERP software cover this process.
This configuration affects the finance and sales modules. It is the final process from customer inquiries to delivery of goods, invoicing and payment of money. The process starts when the customer requests inventory (finished goods for the company). The customer accepts the offer for the article and orders the desired amount.
A company user places an order and sends it for processing. Stock is taken from the warehouse and shipped to the customer. The invoice process also starts with delivery and can be shipped with the item or later. This is the whole OTC scenario.
Here in this article we will discuss the steps in detail about SAP and Oracle OTC.
Understand Order to cash cycle sequence in SAP
As you can see, the OTC process starts with an order (sales order) and ends with cash (payment by the customer). Therefore, the above cycle is called the Order to csh cycle or OTC cycle. Let’s find out how SAP helps automate the above activities to take advantage of the sales cycle.
- The sales order is the starting point for canceling the cycle
- Delivery document
- Dispatch of goods issue
- Shipment document
- shipment cost document
- Customer billing document
- Customer invoice
- Customer payment document
Order to cash cycle in oracle Process flow
ORACLE OTC is a process where orders are created for customers and customer requirements are fulfilled via delivery. Prerequisites are made. Customer master record, sales area (sales organization, business area, and sales funnel) has been created. The steps order to cash cycle in oracle are usually as follows:
- Enter a sales order
- Post sales orders
- Initiates a selection message
- Confirm ship
- Create invoices
- Create receipts manually or use an automatic lockbox
- Transfer to ledger
- Order management: Create and send orders
- Inventory: Availability, reservation
- Accounts Receivable: Received against invoices
- Ledgers: import, entering, and publish journals.
Enter the sales order
Navigation: Super Custom Operations (US) order management > Returns > Customer orders
Enter customer data (send to and invoice to address) and type of order.
Click the Lines tab. Enter the items to be ordered and the desired quantity.
Post sales orders
Order orders by clicking the Order button.
Start a selection message
Navigation: Delivery> Release sales order > Place sales order.
Enter based on rules and order numbers
In the Shipping section below:
Automatic submission creation: Yes
Automatic selection confirmation: Yes
Automated delivery: Yes
In the Inventory section:
Automatic distribution: yes
Enter the warehouse
Click the Run Now button
Ship confirmed order
Navigation: Super User Order Management > Shipping > Transactions.
Ask with the order number.
Click the Shipping tab
Click Confirm Delivery.
The sending status screen closes.
Create an invoice
Start a workflow background.
Navigation: Order management > Views > Queries
Create a receipt
Navigation: Accounts Receivable > Receipts > Receipts
Enter the information.
Click the Apply button to add it to the invoice.
Transfer to general ledger
Run a general ledger transfer program to transfer accounts receivable accounting information to the general ledger.
Navigation: Accounts Receivable > Show requests
Query Program: General ledger transfer program. Transfer parameters and send the program.
Therefore, most of the operating costs are spent on managing the payment order cycle. The greater the inefficiency in the cycle, the greater the risk of potential losses. Because of this, many companies are now outsourcing industry best practices in order management.
A dedicated money order outsourcing service provider can manage sales, accounting and order management, billing data entry and management, and customer service tracking to help companies streamline and streamline these cycles.