Let’s dive into these steps in a bit more detail.
First off, let’s break down the eight main stages of the O2C process:
1. Customer Places an Order
The initial stage of the O2C process, order management, involves receiving and processing customer orders.
This phase sets the tone for the customer's experience and subsequent order to cash stages, so it’s essential to get it right.
Effective order management requires a system that accurately captures order details, including product specifications, quantities, and delivery requirements.
It also involves verifying the availability of products and ensuring that the sales order information is communicated clearly to the fulfillment team.
2. Order Is Approved
The next stage–order approval–is where credit checks (if required) come into play. You need to ensure customers can pay for your products before you subject your company to the expense of order fulfillment.
Effective credit management is essential for maintaining healthy cash flow and avoiding bad debts. Depending on your accounting process, orders may be reflected as revenue at this stage.
3. Order is Fulfilled and Shipped
Once an order is confirmed and credit is approved, the next step is order fulfillment.
This stage ensures that the products ordered are in stock and ready to leave the warehouse. It might include assembling or manufacturing products, as well as picking, packing, and shipping them.
Efficient order fulfillment is crucial to meet delivery deadlines and maintain customer satisfaction. It requires close coordination between sales, production, and logistics teams.
4. Invoice is Created and Sent
As we all know, invoicing is the process of billing customers for the products or services provided.
Invoicing doesn’t always happen after order fulfillment; it varies based on the business model, industry norms, and specific customer agreements. It can occur pre-delivery, after stages of a product are completed, or on a recurring basis.
5. Payment Is Collected and Reconciled
This is the accounts receivable and payment collection stage, where the focus shifts to managing and tracking incoming payments against the issued invoices. It includes monitoring payment due dates, sending reminders, and reconciling received payments with their respective invoices.
Needless to say, effective management of accounts receivable and payment collection are essential for maintaining a healthy cash flow. Errors made at this stage can have disastrous consequences. Effective customer communication can help avoid misunderstandings.
6. Data Management and Reporting: Analyzing and Reporting on the O2C Process for Improvements
The final stage involves managing the data generated throughout the O2C process and using it for reporting and analysis. This step unlocks insights into the efficiency and effectiveness of the order to cash cycle.
Process mining, a technique where algorithms are applied to data logs to discover, monitor, and improve real-world processes, is often used in this step to analyze and optimize elements of the O2C cycle.
O2C business process analysis includes tracking key performance indicators (KPIs) and identifying bottlenecks across every O2C stage, from order management to ensuring receivables are tracked according to company credit policy.
When it runs smoothly, the order to cash process facilitates the efficient conversion of a customer order to cash payment, ensuring goods are delivered timely and accurately as per customer agreement.
The problem is, for many companies, especially in B2B, where sales cycles are long and complex, the process is anything but smooth. This can lead to customer dissatisfaction and delayed cash collection.
As businesses conduct sales across multiple channels, from online to in-person, managing O2C becomes even more complex.
Here are some of the most common order to cash challenges B2B companies of all sizes face:
O2C requires seamless collaboration and communication within your organization (across departments) and externally with customers, transportation providers, financial institutions, and other partners.
However, each handoff presents an opportunity for mistakes as information passes from one party to another. Manual processes compound this issue, introducing opportunities for delays, misunderstandings, and errors that risk derailing the order to cash process.
Here’s what to watch out for if you’re still processing transactions manually:
Data is central to O2C, supplying team members and departments with the information they need to fulfill orders, send invoices, and collect payments.
Beyond fulfilling the order itself, businesses need to put that data to use to refine future processes and enhance customer satisfaction.
The reality is that in most companies, people are unable to access the right data at the right time. Research shows that 78% of executives struggle with utilizing their data for decision-making, underscoring the gap between having and effectively leveraging data.
Here’s why companies often struggle to leverage data effectively:
Expanding into new sales channels allows businesses to reach more customers. But it also introduces operational complexities. Order to cash processes often vary widely between channels–for example, in-person transactions function differently than e-commerce.
This complexity manifests in a few key areas:
The demand for configurable products is transforming B2B sales, with 20% of customers willing to pay more for customized or personalized goods.
Suppliers see strong returns from offering personalized products, but the more product options there are to choose from, the more convoluted the O2C process becomes.
Selling customizable products adds layers of complexity to the order to cash process:
Passing sensitive order data from person to person and system to system demands rigorous security. Failure to protect that data could result in non-compliance with privacy regulations or even risk a data leak or breach.
Data privacy is a significant barrier to order processing and fulfillment. 18% of leaders consider the cost and complexity of data privacy their primary concern due to potential revenue loss and customer trust risks.
Configure, Price, Quote (CPQ) systems are specialized tools used in sales to provide accurate pricing for complex and customizable products.
The essence of CPQ lies in its ability to streamline the sales process by:
CPQ systems simplify complex sales processes, reducing the time and effort required to generate quotes and minimizing errors associated with manual order to cash processes.
CPQ systems like Epicor CPQ come equipped with a range of features designed to optimize the order to cash process:
By incorporating these features, Epicor CPQ enhances the efficiency and accuracy of the sales process and enriches the customer experience.
Let’s now take a closer look at how CPQ obtains these benefits.
CPQ systems streamline the order management process, a crucial component of the order to cash cycle.
Businesses that use best-in-class order to cash tools like CPQ software are 81% more effective at order management than those that don’t.
CPQ automates and streamlines order creation through several mechanisms:
The O2C process is inherently complex, but once you begin offering the configurable products customers demand, it can be overwhelming–until you use CPQ.
CPQ offers an effective solution to pricing and quoting complex products:
Deliver a first-class customer experience, and your business will outcompete those who don’t.
According to a recent Forbes article, companies with a customer experience mindset drive 4-8% higher revenue than the rest of their industries. That's why 80% of leaders plan to increase customer service budgets over the next year - they recognize the competitive advantage an outstanding customer experience can provide.
CPQ systems enhance customer experiences with the following:
CPQ systems create a single source of truth that extends through the order to cash process.
It plays a key practical role in the back-end of the sales process, supporting seamless data flow and management:
CPQ is driven by automation. You collect orders from customers, which automates the production of quotes, invoices, CAD files, and bills of materials (BOMs).
Consider how much time that saves for departments party to the O2C process across production, fulfillment, and accounts receivable.
CPQ systems enable communication and collaboration without compromising security and privacy. Epicor CPQ delivers enterprise-grade security to protect data as it travels over networks and systems.
The order to cash (O2C) process shapes the all-important customer experience, laying the foundation for lasting, highly profitable customer relationships. Yet it also surfaces complex challenges that multiply as businesses strive to deliver seamless omnichannel purchasing and complex, customizable products.
In meeting these demands, however, lies the rich potential for setting your O2C workflow and your company apart through savvy automation, optimization, and differentiation.
Epicor CPQ software enables precisely this. It streamlines virtually every aspect of the O2C process, enhancing accuracy in pricing and quoting, supporting configurable products, and delivering first-class experiences that capture repeat business.
Discover more about how Epicor CPQ can transform your business operations.
How can optimizing the O2C process improve cash inflow for a business?
Optimizing the O2C process can significantly enhance the amount of cash flowing into your business.
By streamlining each step, from order management to cash application, businesses can reduce delays in payment collections, thereby ensuring a steadier and more predictable cash flow. Efficient process management in O2C directly contributes to quicker invoice processing and faster payment cycles.
What are some best practices in O2C process flow to enhance customer relationships?
Focus on transparency, communication, and efficiency. Providing clear and regular updates on order status, accurate invoicing, and timely delivery are essential.
Additionally, implementing customer feedback mechanisms and resolving issues promptly can greatly improve the customer experience and foster stronger relationships.
How does effective process management in the O2C cash cycle impact supply chain management?
By ensuring accurate order details and timelines, businesses can better manage their inventory and logistics, leading to more efficient supply chain operations.
Can improving the O2C process contribute to better working capital management?
Yes, optimizing the O2C process can bolster working capital management. By streamlining the cash conversion cycle, businesses can accelerate cash inflows through faster receivables collection. This enhances liquidity and available operating capital, empowering organizations to pursue growth investments or rapidly pay down obligations.
What role does cash application play in the O2C process flow?
Cash application plays a crucial role in the O2C process flow as it accurately allocates incoming payments against the corresponding invoices.
Timely and accurate cash application is essential for maintaining up-to-date accounts receivable, providing insights into customer payment behaviors, and ensuring that the business understands its financial position and updates its general ledger accordingly.
How can businesses ensure a smooth cash process flow in the O2C cycle?
To ensure a smooth cash process flow in the O2C cycle, businesses should automate repetitive tasks, maintain accurate data, and implement efficient payment and collection systems.
Technology solutions such as Epicor CPQ software can aid in reducing errors and speeding up the entire process, from order configuration to cash collection, thereby ensuring a smooth and efficient cash process flow.
How does the order to cash process impact revenue recognition and credit risk?
O2C links invoicing, credit management, and account receivables to minimize credit risk and achieve accurate, timely revenue recognition.
It starts with customer invoicing to formally record revenues earned. Credit management follows to assess customer creditworthiness and decide payment terms, mitigating default risk. The amounts owed are then recorded as accounts receivable, representing the legal claim to payment.