Order-to-cash details the process of receiving and fulfilling customer purchases, including finalising orders, managing invoices and securing payment.
From the moment that a customer places an order, a vital and complex set of processes are kicked off that have the potential to impact your entire organisation. As the purchase progresses from the initial order towards final payment processing, it becomes crucial to have clear and well-defined steps in place throughout the entire lifecycle so that businesses can deliver consistent value to their customers and ensure that payment is received on time. This is where the concept of order-to-cash comes into play.
Order-to-cash (often abbreviated as OTC or O2C) encompasses the end-to-end process that starts with the customer order and concludes with the collection of payment and any follow-up reporting. It includes a series of interconnected activities – namely, order management, credit management, inventory management, order fulfilment, invoicing, and accounts receivable management – and culminates in managing payments, collections and reporting. Efficiently managing the order-to-cash cycle is essential for businesses, as it directly impacts cash flow, customer satisfaction and overall profitability.
By ensuring the seamless coordination and integration of the various departments involved in the process, organisations can optimise their operations and enhance customer experiences.
Order-to-cash is commonly discussed in conjunction with a similar but distinct set of processes known as quote-to-cash (QTC or Q2C). While both terms are interconnected and share a common goal of streamlining revenue generation, they encompass specific stages and activities within the sales cycle.
Quote-to-cash (QTC) begins with a comprehensive quoting process that spans from the initial stages of configuring an offer to meet a customer’s specific needs, and then creating and presenting a quote, through to negotiating the final pricing and terms. This front-end process, often facilitated by configure-price-quote (CPQ) solutions, includes activities that occur before a customer submits their order. QTC then extends all the way through order processing and fulfilment, invoicing, payment, and reporting, covering the full lifecycle of the purchase.
By comparison, order-to-cash is focused specifically on the stages that are involved in processing customer orders and securing payment. It involves activities such as order management, order fulfilment, billing, payment processing and reporting. OTC is primarily concerned with efficiently managing the orders themselves and ensuring a smooth flow from order placement through to the receipt of payment. Unlike QTC, OTC does not include the CPQ processes or contract lifecycle management, which are part of the pre-order stages. It does, however, include order fulfilment and back-end ERP processes (such as invoicing and recording revenue).
In other words, QTC comprises the purchase lifecycle starting with the quote, while OTC details the processes that occur after the customer has placed an order.
To the outside observer, it may not appear as though much happens between submitting an order and collecting payment. But the truth is, there are eight phases that must be concluded before a sale can be considered complete. These phases are:
- Order initiation
The OTC process begins with order initiation, where a customer places and confirms their order – which can occur through various channels, such as online platforms, sales representatives or customer service teams. This phase involves capturing the order details accurately, including product specifications, quantities and delivery requirements. Electronic order capture streamlines this task, automating order capture and ensuring that all the relevant information is included before pushing it to the next phase. - Order processing
The order processing phase involves verifying the order information, checking product availability and determining pricing and discounts. In the context of B2B, this phase often involves handling complex commercial orders that may consist of hundreds of line items comprising various products and services, fulfilled by multiple warehouses or vendors. Businesses will generally break down these large orders into individual line items in a process called decomposition, specifying each product or service required. Order processing also includes order confirmation, where customers are provided with order status updates and estimated delivery timelines. - Credit management
Credit management involves evaluating customer creditworthiness prior to and during order processing, including setting credit limits and performing credit checks. The purpose of credit management is to ensure that the customer has the necessary credit or other payment terms in place before their orders can move into the fulfilment phase. This phase only applies to businesses that make sales on credit and thus need to account for additional customer financial risk. - Order fulfilment
After order processing and any necessary credit checks have been completed, the order moves into the fulfilment phase. For some types of orders, this step involves picking, packing and shipping the ordered items based on the specified delivery instructions, while other, more complex orders require orchestration. Order orchestration involves detailed workflows for coordinating and managing tasks and resources to fulfil customer orders. This ensures synchronised execution of steps to meet the customer’s requirements and delivery expectations. Order fulfilment ensures that the products are prepared for shipment accurately and promptly.
Depending on the nature of the business, this step may involve coordinating with logistics partners for timely and secure delivery. In cases where installation or setup is required, the necessary arrangements (such as scheduling field service resources and managing complex software installation projects) are made during the shipment stage. This also includes notifying the customer and providing them with order tracking details. - Invoicing
After the order has been fulfilled or made ready to ship, an invoice needs to be generated. Invoicing serves as a formal request for payment from the customer and must be completed before payment can be received. Invoices identify the products or services provided and include details of prices, taxes and any applicable discounts attached to the order. - Accounts receivable management
Managing accounts receivable involves tracking and monitoring customer payments, updating payment records and managing outstanding balances. Effective accounts receivable management helps organisations to maintain a healthy cash flow by allowing them to more effectively track invoices, create reminders, identify outstanding balances and more. - Payment collections
In the payment collections phase of OTC, the primary focus is on securing payments from customers. This entails utilising diverse payment methods, including credit card transactions, electronic fund transfers and traditional cheques. This phase is also where companies manage discounts and disputes. In payments where a customer has taken an unexpected discount, this must be reconciled, and in cases where payments become overdue, it becomes the responsibility of the accounts receivable and collections departments to take the necessary actions to address the issue promptly and legally. - Reporting
Finally, reporting provides valuable insights into order volumes, sales performance, outstanding payments and other key metrics. Strong reporting mechanisms enable organisations to analyse and optimise their order-to-cash cycle, identify bottlenecks and make informed business decisions.
There are few things as key to business success as effective and efficient order fulfilment and invoicing. It’s not just the ability to do it – it’s the ability to do it well. As such, order-to-cash is a critical process, allowing organisations to create a clear framework for receiving revenue from customer orders. More specifically, order-to-cash assists with the following functions:
Efficient OTC processes ensure timely and accurate order fulfilment and invoicing, minimising delays in receiving payments and maximising cash flow. By swiftly converting customer orders into revenue, organisations can enhance their financial health and drive business growth.
Streamlining the buying process for customers by minimising order-to-fulfilment time, reducing the need for customer support intervention, and minimising errors in orders and invoices all contribute to reduced customer effort and improved customer satisfaction. Meeting customer expectations promptly and accurately helps to build trust and loyalty.
An optimised OTC process minimises delays in receiving payments and optimises accounts receivable management. By ensuring that orders are confirmed swiftly and fulfilled correctly, that invoices are promptly issued, that payments are accurately recorded and that outstanding balances are efficiently tracked, organisations can effectively manage their cash flow and minimise revenue leakage (which describes situations in which purchases are cancelled, items are returned, orders are not invoiced, invalid deductions are taken or orders otherwise fail).
Streamlined OTC processes can significantly reduce labour costs by automating repetitive tasks, mitigating errors and eliminating redundant activities. Effective OTC also minimises the risk of costly disputes and issues related to non-payment. By optimising operational efficiency, organisations can achieve improved cost savings while maintaining high-quality customer service.
A well-executed OTC process allows organisations to track sales, order fulfilment, receivables and cash inflows more accurately. This enhanced financial visibility provides valuable insights into company revenue streams, customer payment patterns and overall financial performance, facilitating informed decision making.
Automating key tasks and eliminating bottlenecks in OTC processes empower businesses to handle increasing order volumes with fewer staff, all while maintaining accuracy and customer service standards. This scalability ensures that organisations can effectively meet growing demand without compromising operational efficiency.
Although they are crucial for business success, OTC processes are not without their challenges. Overcoming these challenges is essential for organisations to optimise their OTC cycle and ensure seamless operations. Common issues and inefficiencies that may stand in the way of effective OTC include:
Lack of integration between various OTC systems, such as order management software, enterprise resource planning (ERP), billing platforms and custom solutions, can hinder the smooth flow of data and information within the OTC process, leading to inefficiencies and errors. Siloed systems hinder the smooth flow of information, making it difficult to access accurate and up-to-date data across the OTC lifecycle. As such, working within a single, centralised platform is often essential to establishing seamless integrations between systems to enable efficient data exchange and end-to-end visibility.
Today’s customers demand a lot when it comes to order fulfilment, as they expect fast, accurate and personalised experiences. Meeting these expectations requires organisations to streamline their OTC process and minimise delays in order processing, fulfilment and invoicing. Failure to meet customer expectations can result in customer dissatisfaction, product or service abandonment and potential revenue loss.
Limited transparency into the OTC lifecycle can make it challenging to track orders, monitor fulfilment and invoicing progress and identify bottlenecks or issues. Organisations need real-time insights and comprehensive reporting to understand the status of each order and invoice, identify potential roadblocks and proactively address these. Without visibility, it becomes difficult to optimise OTC processes, monitor OTC operational key performance indicators (KPIs) and enhance operational efficiency.
Reliance on manual tasks and paper-based processes within the OTC cycle can introduce errors and inefficiencies. A manual approach to data entry, order processing, invoice generation and payment reconciliation increases the risk of mistakes and delays that may resonate throughout the purchase lifecycle. These errors not only impact customer satisfaction, but can also lead to revenue leakage and strained relationships with customers and suppliers.
Pricing and order fulfilment can be extremely complicated, especially in industries with multiple product variants, customisations or complex pricing structures. Managing and communicating accurate pricing information and coordinating fulfilment activities across different product lines or service offers pose challenges in OTC, and inaccurate pricing or fulfilment can result in order errors, slow fulfilment, customer disputes and revenue loss – especially when combined with manual fulfilment processes.
With so much riding on effective order-to-cash processes, it is imperative for organisations to have strategies in place to counter the issues identified above. Overcoming the challenges associated with the OTC process necessitates innovative solutions that streamline operations, enhance visibility and improve efficiency, while meeting customers’ expectations. Organisations have used several approaches to tackle these challenges, though each has its limits:
Custom coding involves developing software solutions tailored to specific business requirements and integration needs. This approach helps organisations to overcome integration challenges by building custom applications and interfaces between different systems and facilitating seamless data flow. Custom coding allows for greater flexibility, but can be complex, time-consuming and costly to develop and maintain.
As technology advances, organisations are also exploring low-code and no-code platforms that offer faster and more agile development options, reducing reliance on traditional custom coding approaches.
Order-to-cash suites and point solutions are designed specifically to address the challenges and complexities of the OTC process. These solutions integrate various stages of the OTC lifecycle, providing centralised visibility, help in automating workflows, and enhanced collaboration among different departments. They also generally offer analytics and reporting capabilities, providing valuable insights into key metrics and performance indicators. That said, OTC suites are often plagued by visibility gaps, with workflow tools that may overlook some parts of the OTC process. Typically, these suites serve as strong tools for order management or invoicing, but may fall short in other areas.
Human middleware refers to manual interventions and processes that bridge the gaps between disparate systems and enable data flow. While not an ideal solution, including an extra layer of human oversight can help some organisations to overcome integration challenges by manually transferring data between systems.
However, this approach is time-consuming and error-prone, and limits scalability. To address this, organisations are increasingly adopting automation tools and technologies to replace manual interventions and reduce reliance on human middleware in OTC and other processes.
To optimise order-to-cash processes and drive operational efficiency, organisations must adopt best practices that help to address pain points, streamline workflows and enhance customer experiences. Here are several key best practices to consider:
- Analyse each step in the process
Begin by thoroughly analysing each step within the OTC process to identify bottlenecks, inefficiencies and areas for improvement. This analysis helps to pinpoint specific pain points and guides the implementation of targeted solutions. - Prioritise areas with high ROI
Focus on areas where process improvements offer the highest return on investment in exchange for the least effort and cost. Prioritise initiatives that will have the most significant impact on operational efficiency, cost reduction, revenue leakage, customer satisfaction and cash flow optimisation. - Automate processes
Automation plays a crucial role in optimising the OTC process. Identify manual and repetitive tasks that can be automated, such as order intake, order processing, order orchestration, invoicing, deductions management and payment collections. Automating these tasks reduces errors, accelerates processing times, reduces revenue leakage and improves overall productivity. Any area where you can apply automation is an area where you have the potential to decrease timelines, improve accuracy and eliminate bottlenecks, so be liberal in your use of automation. - Integrate operations and data
Integrate operations and data across siloed systems of record. Tearing down data silos promotes smooth information flow across systems, people and departments. When implemented correctly, integration improves visibility, reduces the risks associated with manual data entry and enhances accuracy throughout the OTC process. - Simplify experiences for customers and agents
Streamline the buying experience for customers by minimising complexities and reducing friction points. Implement user-friendly interfaces, intuitive self-service portals and clear communication channels to simplify interactions for both customers and agents. A seamless experience enhances satisfaction and loyalty with those who choose to do business with you, while also ensuring that those who do business for you are getting the most out of the tools that you provide. - Provide end-to-end visibility
Establish end-to-end visibility across the OTC process, allowing stakeholders to track and monitor orders, payments and fulfilment status in real time. Comprehensive visibility helps to identify potential issues, address bottlenecks and intelligently manage exceptions. - Listen to feedback
Those who are most directly involved in the OTC process are likely to have the most relevant insights into its effectiveness, which is why you should actively seek out and listen to feedback from both customers and employees. Leverage customer insights and feedback to refine processes, improve customer experiences and meet evolving needs. Likewise, gather input from employees who directly engage with the OTC process, as they can supply you with suggestions for process enhancements.
The order-to-cash process is a critical element of business operations that directly impacts revenue generation, customer satisfaction and overall financial performance. Establishing an effective approach to OTC is crucial for organisations to optimise efficiency, minimise errors and enhance customer experiences. But OTC can also be a complex and difficult beast to master, and the right tools and technologies therefore play a significant role in enabling organisations to achieve effective order-to-cash solutions.
ServiceNow, the leader in customer service management, provides a single system of engagement and action across the end-to-end OTC process. Order Management automates and optimises order intake as well as order decomposition and orchestration. With ServiceNow Automation Engine, manual processes across the OTC lifecycle can be automated and streamlined, reducing errors and accelerating order-to-cash. Customer Service Management (CSM) provides the necessary interaction and service components, offering customers a centralised hub for accessing OTC information and taking appropriate actions. Field Service Management and Project Portfolio Management enable complex installation projects to be managed with complete visibility.
These products provide a fully centralised and integrated OTC solution.
Unlock the full potential of Order-to-Cash: Contact ServiceNow today to get started.