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How Can Automation Help Your Order to Cash (O2C) Process? [2024]

Order to Cash, or O2C, is a chain of steps businesses follow from when they receive orders up until they ship them out. The problem; however, is a lack of consistency in task duration. In a period where customers are more impatient than ever before 1, it’s important that businesses process and ship out orders quickly, while are also confident that the pertaining finances are in order. In this article, we explain how automating the different stages of the O2C process could help businesses achieve that.

What is the order to cash (O2C) process & how can automation help?

Order to cash is roughly a nine-step process from order placement, to fulfillment, and shipment, and all the steps in between.

Because we plan to delve deep into each specific step, we will divide the O2C process into two sections of logistics and finances, and then explain where each step lies at.

Financial steps

The financial steps of O2C are as follows:

  1. Credit is extended
  2. Invoice is issued.
  3. The payment is processed.
  4. The sale is recorded.

We will now go into details regarding each step.

Extending a credit line

The dilemma vendors face is that they cannot receive money prematurely, yet cannot wait until the payment is processed to set the logistical wheels in motion.

So what they do is they establish a line of credit, with the philosophy that all customers have money to pay for their orders until proven otherwise. Therefore, steps such as inventory management and shipment scheduling are done while it’s assumed that payment is secured.

Recommendation:

Issuing invoice

During the credit extension process, the business owner issues an invoice for the product by filling out the following information:

  • Date
  • Customer’s info
  • Order ID and order description
  • Final amount
  • Payment method
  • Payment timeline
  • Delivery mechanism

If there is an asymmetry of information, the invoice will be void. For instance, if it’s not clear on whom the shipping fee falls, the invoiced amount will not be correct. Or if the receipt doesn’t correspond with the ordered goods, again the invoice will be invalid. Although filling these blanks can seem straightforward, accuracy is of the utmost importance.

Recommendation:

  • An O2C software is able of integrating with OMS platforms and leverage RPA and orchestration to automatically gather the customers’ data, issue the invoice accordingly, and send it to them through emails.

Processing payments

If the payment has been made via debit card or cash, the invoice will reflect that, and the payment gets settled once the transaction is finalized.

However, if the payment is made via a credit card, which is more likely given it’s the most popular method in the U.S., things get complicated because the business will have to wait for some time before it receives what it is owed. That is known as the DSO.

The main risk arising from this step is that the business might miscalculate the DSO (i.e. underestimating the number of days before they receive the money) or miscalculate how much cash they need to have in reserve to cover that period.

Recommendation:

  • O2C solutions have in-built computational formulas for accurately calculating DSO based on the inputs.
  • It has dashboards, allowing users to monitor the time-duration in real-time and ensuring that the users have knowledge of their free working capital in the interim.
  • The solution through the use of RPA and IA automates collection: it will send email reminders to customers with a payment link and record the payment receipt on its database.
    • It also has the feature of automatically alerting the bank when a debt is defaulted.

Recording sales

Recording the sale is writing down the information pertaining to the sale into a journal which will then be transferred to the general ledger at the closing period.

One challenge with recording sales is inaccuracy. The person responsible for this task might simply write down a different value, forget to write the date, or commit any other manual error of this kind.

The other challenge is recording transactions from different channels. A business might get one order in person, the other from its website, the other from its listings on Amazon, and one via email. Keeping track of all orders coming in from different channels can take effort and could also result in some orders not being accounted for.

Lastly, every transaction a business makes has to be entered into the journal. When the closing period arrives and accountants have to undertake journal entry, they would again have to go back, identify these transactions, and record them on the journal. This process can be time-consuming, inefficient, and error-prone.

Logistical steps

The logistical steps of O2C are as follows:

  1. The customer places an order.
  2. Inventory availability is ensured.
  3. A shipping timeline is established.
  4. Order is shipped.
  5. Inventory refill gets underway.

For each of these steps to function efficiently, quick data exchange is required.

For instance, a customer would get discouraged if their order was placed quickly, yet the order status remained “in progress” for some time, simply because the business was having trouble manually confirming inventory from the warehouse.

Or it’d be equally unfortunate if the order was placed, the inventory was approved, yet the company had a transportation issue that made it unfeasible to schedule a shipment in time.

Recommendation:

  • Leverage an order management system (OMS), a single repository for viewing order placements, managing inventory, and establishing a shipment status in real-time, for managing the financial side of the OTC process.

Benefits of OMS to businesses:

  • Progress monitoring: Having visible dashboards of orders that are being placed, automatic inventory checkup that’s being done, ans the relevant shipment timeline that is being scheduled.
  • Workload reduction: Being able to reduce the workload of your employees from manually checking inventory or scheduling shipments, and instead allowing them to focus on more crucial tasks such as customer service or marketing plans.
  • Scheduling ahead: Because all logistical steps will be done automatically, the process will always be done in a consistent and scheduled time frame. This will allow you to build your O2C schedule with having solid time frames in mind.

For more on FinTech

If you are interested in learning more about other technologies used in finance, read:

Finally, if you are interested in leveraging a FinTech solution for your business, we have a data-driven list of vendors prepared. Go through them, and we will help you choose the best one that is right for you:

Find the Right Vendors
Access Cem's 2 decades of B2B tech experience as a tech consultant, enterprise leader, startup entrepreneur & industry analyst. Leverage insights informing top Fortune 500 every month.
Cem Dilmegani
Principal Analyst
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Cem Dilmegani
Principal Analyst

Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.

Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.

Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.

He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.

Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.

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