Order-to-Cash

What are the key steps in the order-to-cash cycle?

While every organization has its own particular processes and policies to work through, generally speaking an order-to-cash cycle will follow a core set of steps across all industries. The following nine steps provide a strong baseline for keeping orders flowing smoothly across your business processes.

1. Order placement

Your customer places an order via an online form, an email exchange, a telephone purchase, or whichever system your business prefers.

2. Order management

The order is entered into your system to be routed to all relevant departments and individuals. With an automated order management system, instant notifications are sent to every department that will need to interact with the order.

3. Credit management

If the customer is making a purchase using credit, the order enters the credit approval process. This is especially important when dealing with a new or unfamiliar customer. If further approvals or reviews are needed, the order is routed to the appropriate staff. Otherwise, it is approved and moved on to the next step.

4. Order fulfillment

The order fulfillment step is the point where the goods or services are delivered to the customer. This step makes it especially important to have a close eye on inventory counts. An inventory management process including real-time updating on inventory levels and out-of-stock items helps to prevent complications and billing problems that can create discord in a valuable customer relationship. Inventory counts should be updated on the sales side using real-time data to ensure an accurate count and to reduce the risk of unfulfilled orders.

5. Shipping

The shipping stage requires clear communication between your order processing and logistics teams. Time is always a factor for order shipping, so regular audits that ensure that your workflows are moving smoothly and predictably are essential for this step.

6. Invoicing and billing

Once the order is shipped, an invoice must be created and sent. All invoices should all data relevant to the order in question, including:

• Specifics of the order
• Cost of the order
• Terms of credit and payment
• Order and shipping date
• Identifying customer data

Depending on the customer and the AP system, invoices may be submitted in a variety of formats, including PDFs, Microsoft Word documents, Microsoft Excel sheets, faxes, emails, or scans of physical documents. An automated data entry solution including optical character recognition (OCR) can automatically extract all relevant data from any of these formats and enter it into your AP system.

7. Accounts receivable processing

The accounts receivable process involves working with accounts payable to confirm that all of the collected invoice data is correct and properly recorded. That often includes using three-way matching to compare information between the invoice, purchase order, and receipt of goods or services. If errors or exceptions are detected, documents are re-routed for corrections before proceeding to the approval process.

Accounts receivable is also responsible for following up on outstanding invoices. An automated system can detect and flag any payments that remain outstanding beyond a set period of time and automatically issue payment reminders to customers.

8. Payment collection

Customer payments are collected by the accounts receivable department, usually within a specific time frame in order to reduce the risk of bottlenecks and delays. This can be handled via automatic payment processing tools or via manual payments, with the former being the faster and more efficient option. Automation also greatly reduces the risk of errors such as overpayments, underpayments, and duplicate payments.

If any errors or exceptions arise during the payment collections step, your accounts receivable team will need a process for communicating your concerns with the customer clearly and quickly. Failure to pay within a designated time window may require that a customer be flagged for non-payment, and possibly placed in a credit hold. Future orders from customers who have been flagged may need to be paid for in advance.

9. Reporting and data management

Even after the order has been processed, shipped, and paid for, there is still some important work for your team to complete. All processed orders should be recorded into your data management system. This makes your OTC data easily findable and usable for future data analysis that can play an important role in streamlining, refining, and improving processes in the future, as well as identifying any persistent problem areas that need to be addressed.