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Posted by Matt Osborn - 28 June, 2019

5 Actionable Ways to Improve Your Order to Cash Cycle

Order to cash is the process that handles the customer orders lifecycle.

It's a workflow that is also responsible for bringing cash into the company. A well-oiled order to cash process can still be improved, which can lead to increased revenues.

In this article, we'll share 5 actionable ways to improve your order to cash cycle.

Defining The O2C Cycle

To provide a common framework, let's first define the O2C (order to cash) cycle.

O2C is part of the overall value chain. It is all about receiving and processing customer sales. A finely tuned O2C process will ensure working capital is available, DSO remains efficient, and collections are handled in a timely manner and within budget.

The process of order to cashImage Source

The following steps are not a rigid framework, as more steps can be added and subtracted. Instead, these steps encompass the general order to cash process:

  1. Customer Order - Quote order, receive purchase order. Verification that the order is accurate and the product is available.
  2. Extend Credit - Allow the customer to pay on credit. Company credit policy will determine how much credit is available to the customer. If the customer doesn't have enough credit, the order may fail.
  3. Order Fulfillment - Process the order for shipping. Adjust inventory.
  4. Invoicing - Send invoice to the customer.
  5. Customer Payment - Receive customer payments, handle any late payments or collections, and provide customer service for disputes.
  6. Cash Management - Adjust receivables and reconcile with your bank.

There are a number of areas in the above steps that can improve your order to cash cycle.

 

1. Automation

This section relates to all steps in the O2C Cycle.

Manual involvement requires human interaction. Any human interaction has the potential to introduce errors and inefficiencies.

Instead, automating tasks ensures they will be done the same way every time. You'll also be able to incrementally improve processes by measuring against a baseline.

Sending out invoices and collecting payments are two of the first areas you can easily automate.

Programs such as Quickbooks allow you to easily create and send customer invoices. Customers receive a digital invoice and can then pay it online.

This payment funnels back into your accounts receivables in Quickbooks, helping you to automate some of your bookkeeping.

There are larger, more costly programs that can do even more automation. Depending on where your business is in terms of growth and revenues, it makes sense to start with a smaller program that doesn't require extensive integration.

You can always scale up as your business grows.

 

2. Standardized O2C Process

This section relates to all steps in the O2C Cycle.

Standardized processes and explicit policies allow for consistent communication and expectations.

The more employees in your company, the more documented procedures become important.

These standardized forms of communication ensure every employee receives the same instructions for his or her role.

Assuming documentation is being kept up to date when an employee leaves the company, they don't take important knowledge with them. Having readily available documentation for tasks allows new employees to more quickly get up to speed.

It will take some time to document your O2C Cycle. But the effort is certainly worth it.

Once your cycle has been documented, you can be sure all involved employees will complete a task the same way, cutting down on variation.

The improved consistency will allow you to measure progress, which also leads to improvements in the process.

 

3. Don't Offshore Or Automate Customer Service

This section relates to step five in the O2C Cycle.

Many companies try to reduce their cost by automating or offshoring customer service. Having someone with a different accent read from a script can be off-putting to your customers.

Running them through a chatbot that is never able to provide an adequate answer either, this type of automating isn't going to win you any additional customer loyalty.

If your selling high ticket items, customers will expect to speak with someone who is knowledgeable about the product and their specific order.

Risks of Outsourcing Customer ServiceSource

Providing such white glove customer service will cost more than automating or offshoring.

But what will it cost if a customer decides to leave because you chose a cheaper customer service option?

 

4. Avoid Tacking On Fees

This section relates to steps four and five in the O2C Cycle.

Unforeseen order cost can happen, and you'll be tempted to add them to your customer's invoice.

Before you do, consider an alternative. Invoice the customer for the product and fees they are expecting. For any unexpected fees, send a separate invoice describing in detail what the fees are.

They most likely will be some type of reimbursement fee. Sending such fees separately allows customers to pay for products or services rendered as expected. Any additional fees may be disputed, but at least you'll receive the bulk of your payment.

Consider calling the customer to let them know about any additional fees. Describe the situation so they have a full understanding of why the fees are being incurred.

It's best if you can let customers know about  unexpected fees before any orders are placed. Such a notice is a type of catch-all.

That way, if a customer never fully reads your engagement agreement, at least you can point to the clause in your agreement that outlines any unexpected fees.

 

5. Accurate Customer Data

Maintaining accurate customer data across different systems within the same company can seem like mission impossible.

However, inconsistent customer data can wreak havoc on productivity and customer satisfaction.

For example, the sales team is using a CRM different from that of accounting, who are using something different from the procurement team. Members of each team must somehow get any updates about a customer to the other team.

You can probably see how this is error-prone.

Customer data for order to cash processSource

Companies aren't always able to use the same system across multiple departments. As a company grows and upper management turns over, different systems are added. Compatibility isn't always considered.

Some systems have triggers that can send an automated email or notification to another team when customer data is updated.

Depending on the systems, there may be some way to do limited integration and remove any human interaction.

Lacking those options, going with a system that allows for compatibility across multiple departments will be more efficient and cost less in the long run.

Summary


What is the order to cash process flow?

  1. Customer Order - Quote order, receive purchase order. Verification that the order is accurate and the product is available.
  2. Extend Credit - Allow the customer to pay on credit. Company credit policy will determine how much credit is available to the customer. If the customer doesn't have enough credit, the order may fail.
  3. Order Fulfillment - Process the order for shipping. Adjust inventory.
  4. Invoicing - Send invoice to the customer.
  5. Customer Payment - Receive customer payments, handle any late payments or collections, and provide customer service for disputes.
  6. Cash Management - Adjust receivables and reconcile with your bank.

What are good way to improve the order to cash process flow?

  1. Automation
  2. Standardized O2C processes
  3. Keep Customer Service In-House
  4. Avoid Tacking on Fees
  5. Accurate Customer Data

Control your company's cash flow

Topics: Finance, Management