Order-to-cash explained: Streamlining your financial operations

For finance leaders, streamlining operational efficiency isn't merely about cost reduction—it's about driving growth, enhancing customer satisfaction, and maintaining a competitive edge. The order-to-cash (O2C) process is at the forefront of these objectives.

The order-to-cash process forms the foundation of a company's finance operations. It encompasses the entire journey from the moment a customer places an order to the point when payment is received and reconciled. While many companies still rely on manual processes, modern order-to-cash software can automate and streamline these operations, improving efficiency and reducing errors. While the concept may seem straightforward, the execution involves a series of interconnected steps, each critical to the financial health of your organization.

Let's explore the intricacies of O2C and examine how optimizing this crucial process can transform your business operations, providing you with the insights needed to drive financial success and aid in decision making.

Understanding the order-to-cash process will help you start optimizing your financial operations. This cycle consists of seven interconnected stages, each playing a vital role in ensuring smooth transactions, timely payments, and healthy cash flow.

Let's examine each stage in detail, starting with order management and progressing through to collections and dispute resolution. As we explore these steps, consider how your organization currently handles each phase and where there might be opportunities for enhancement.

Order management

The O2C cycle begins with order management, a stage that sets the tone for the entire process. Effective order management includes:

• Verifying product availability and stock levels.
• Confirming pricing and applying any relevant discounts.
• Establishing accurate delivery timelines.

A well-executed order management process lays the groundwork for a smooth O2C cycle, ensuring consumer satisfaction from the outset and minimizing potential issues downstream.

Credit management

Before fulfilling an order, assess the customer's ability to pay. Credit management is a vital step that involves:

• Conducting thorough credit checks on new customers
• Establishing and adjusting credit limits based on payment history and financial stability
• Continuously monitoring customer creditworthiness

Well-developed credit management practices allow you to balance business growth with risk mitigation, enabling you to make informed decisions about extending credit while protecting your company from potential bad debt.

Invoicing

Once an order is confirmed and credit is approved, the invoicing process begins. While it may seem straightforward, effective invoicing involves several key considerations:

• Generating accurate, detailed invoices that comply with regulatory requirements
• Selecting the most appropriate invoice format (paper, electronic, EDI) based on customer preferences and industry standards
• Ensuring timely delivery of invoices to facilitate prompt payment

Your invoice often serves as the final touchpoint with your customer before payment. A clear, professional, and timely invoice can impact your cash flow and customer relationships.

Payment processing

As customers prepare to settle their invoices, the payment processing stage comes into play. In today's diverse payment landscape, this stage involves:

• Offering a range of payment options to accommodate customer preferences (e.g., ACH, credit card, checks, digital wallets).
• Ensuring secure transaction processing to protect sensitive financial information.
• Accurately reconciling incoming payments with corresponding invoices.

The goal of efficient payment processing is to remove friction from the payment experience, encouraging prompt settlement of invoices and improving cash flow.

Cash application

Once payment is received, the cash application process begins. This critical stage involves:

• Accurately matching payments to the correct invoices.
• Applying payments correctly within your accounting system.
• Handling exceptions such as partial payments, overpayments, or payments without proper remittance information.

Precise cash application is essential for maintaining accurate financial records and providing excellent customer service. Errors at this stage can lead to unnecessary disputes and inefficiencies in the collections process.

Read the blog → How to improve your cash application process

Collections and dispute resolution

In an ideal scenario, all customers would pay on time, every time. However, the reality often requires a collections and dispute resolution process. This final stage of the O2C cycle includes:

• Implementing a structured approach to following up on overdue payments.
• Negotiating payment plans when necessary to facilitate settlement of outstanding invoices.
• Efficiently resolving disputes related to invoices, deliveries, or product quality.

Effective collections and dispute resolution processes not only help recover outstanding payments but also play a crucial role in maintaining positive customer relationships even in challenging circumstances.

A streamlined O2C process directly impacts your company's cash flow. By reducing delays and inefficiencies throughout the cycle, you can accelerate cash conversion, improving your working capital position and providing more resources for strategic investments and growth initiatives.

Moreover, an efficient O2C process enhances customer experiences. When orders are fulfilled accurately and invoices are clear and timely, customers are more likely to pay promptly. This positive cycle can lead to increased customer loyalty and revenue growth.  Automating order-to-cash processes also allows you to reallocate resources to more strategic activities.

Finally, a well-managed O2C process provides insights into your business operations. By closely monitoring each stage of the cycle, you can identify trends, anticipate potential issues, and make data-driven decisions to improve your financial performance.

Despite its importance, many organizations face challenges in optimizing their O2C process. Some common obstacles include:

• Manual processes and data silos: Many companies still rely on manual data entry and disparate systems, leading to errors, delays, and lack of visibility across the O2C cycle.
• Inconsistent credit policies: Without clear, standardized credit management processes, companies may expose themselves to unnecessary risk or miss out on valuable business opportunities.
• Invoice disputes and discrepancies: Errors in invoicing or mismatches between orders and deliveries can lead to payment delays and strained customer relationships.
• Inefficient collections processes: Lack of a structured, proactive approach to collections can result in high DSO (Days Sales Outstanding) and increased bad debt.
• Limited payment options: Failure to offer customers their preferred payment methods can lead to delayed payments and decreased satisfaction.
• Poor cash application: Difficulty matching payments to invoices, especially with incomplete remittance information, can create a backlog of unapplied cash and inaccurate financial reporting.

Addressing these challenges through O2C optimization can yield numerous benefits for your organization:

• Improved cash flow: Faster invoice-to-cash cycles mean more working capital for your business.
• Enhanced customer interactions: A smooth, transparent O2C process leads to better customer experiences and stronger relationships.
• Reduced DSO: Efficient invoicing and collections processes can reduce your Days Sales Outstanding.
• Lower operational costs: Automation and streamlined processes reduce manual effort and associated costs.
• Improved accuracy: Automated systems minimize human error, leading to fewer disputes and more accurate financial reporting.
• Better decision-making: Real-time visibility into the O2C cycle provides valuable insights for strategic planning.
• Increased scalability: An optimized O2C process can more easily accommodate business growth without proportional increases in costs.

Read the tip sheet → Automating cash application

To effectively manage and improve your O2C process, be sure to track relevant key performance indicators (KPIs). Some essential metrics include:

• Days sales outstanding (DSO): Measures the average number of days it takes to collect payment after a sale is made.
• Invoice accuracy rate: Tracks the percentage of invoices issued without errors.
• Average time to process orders: Measures the efficiency of your order management process.
• Percentage of touchless invoices: Indicates the level of automation in your invoicing process.
• Cash conversion cycle: Measures the time it takes for your company to convert investments in inventory into cash flows from sales.
• Satisfied customer scores: Gauges how satisfied your customers are with your billing and payment processes.

Optimizing your order-to-cash process is not just about improving a single aspect of your finance operations—it's about transforming the way your business manages its revenue cycle. By streamlining each stage of the O2C process, from order management to collections, you can unlock improved cash flow, enhanced customer satisfaction, reduced costs, and better strategic insights.

At Billtrust, we understand the complexities and challenges of the O2C process. Our unified, end-to-end accounts receivable automation platform is designed to help businesses like yours control costs, accelerate cash flow, and improve customer satisfaction.

Our suite of solutions covers every stage of the O2C cycle:

• Credit management tools for efficient risk assessment and ongoing monitoring.
• AI-powered invoicing solutions that ensure accuracy and compliance.
• Advanced payment processing capabilities, including our Business Payments Network (BPN) for streamlined B2B transactions.
• Industry-leading cash application software powered by machine learning, delivering high match rates and reducing manual work.
• Intelligent collections management to optimize your accounts receivable.
• Analytics and reporting tools for data-driven decision-making.

By integrating these solutions into a single, unified platform, we offer a holistic approach to O2C optimization. Our technology is designed to work with existing ERP systems, providing a smooth transition to a more efficient, automated O2C process.

Don't just adapt to the future of finance—lead it. Schedule your demo now and start your journey to O2C excellence with Billtrust.