What is the deduction in O2C (Order To Cash)?
Order to Cash (O2C) is defined as a set of business processes that are widely used by a business organisation that involves receiving and processing customer requests for different goods and services. It is the top-level software used by management to describe the finance-related terms of customer sales. The deduction in O2C is crucial for business purposes in order to maintain the smooth working of the organisation. Deduction in O2C can severely impact the supply chain management, sales management, inventory management, operation management and organisation management.
Thus, if any error is created in the O2C cycle, then it adversely affects the organisation. Additionally, the company working capital and outflow-inflow cash management are determined by O2C functions. Thus, a delay in invoicing or payment collection can be harmful for the organisation that requires spending profits like payroll, spendings.
Customers may take several types of deductions from their payment such as damaged goods, volume discounts and several allowances. These deductions are basically made by customers and are assigned to one single collection person. Hence, it becomes very complicated to understand such deductions made by the customers. An alternative or the simplest method to solve this problem is to re-route different types of deductions to Subject Matter Expert (SME), who have practised and hold experience for such specific deductions.
The use of systematic SME system requires all customer deductions should be coded by type when the related invoice arrives and get stored in the data. Deduction in O2C is then used to route the deductions to deduction SME’s. It is also useful for monitoring and optimising the time required to resolve each deduction. It is also used to track the efficiency levels and adjust the work atmosphere of systems.
In order to successfully optimise the working of deduction in O2C, consider applying its concept for single types of deduction to one of the best analyst or data scientist and work through any issue or complaint registered by that person. Once the error is resolved, roll out this concept to other deduction types.
Deduction in O2c process always starts with an investigation that involves why the deduction was taken. This generally involves why there was a short payment for the particular transaction. If the investigation operated proves that deduction is valid then the credit memo is generated and it will deduce the particular deduction. But if the deduction is invalid or unjustified then the bill back notification is generated and it is followed up until that payment is made successfully received or settlement is made.
The age of deduction plays an important role in solving the resolution. Most companies will only research a deduction which is a few months old. time limitation can also be due to the ability to make proper documentation. For example- Courier will typically only provide the proof of deliveries for up to a few months. Deduction in O2C will provide proper guidelines and most effective process and timing.
- Deduction in O2C helps to dramatically reduce the time to process (TTP) every transaction. On average, it is found that the time is reduced up to 6 to 8 hours.
- Deduction in O2C provides an accurate accuracy of about 99.99% to the company.
- Deduction in O2C can be performed anywhere across the world. You can target your customer and audience within your country as well as outside your company.
- Deduction in O2C involves a very mere cost in operating.
- Deduction in O2C connects technology platforms through the cash application process and increases performance and efficiency.
- Deduction in O2C helps to reduce the overhead and processing costs for the organisation.
- Deduction in O2C helps to improve the cash flow by removing all the significant backlogs.