Efficiently Optimize Working Capital

Order to Cash (O2C) is the money due to a vendor from a customer who has not yet paid for their purchase. While a vendor-customer transaction can sometimes run from beginning to end in a matter of a few minutes, like in the case of a fast-food order, other times the amount owed is recorded on an invoice that is issued to the customer by the vendor. The issuance of an invoice implies that the vendor has granted credit to a customer to allow them to pay the balance within a given timeframe. The order to cash process concludes with the payment of the invoice by the customer to the vendor and the recording of the cash payment by the vendor.

Yes, in accounting terms, the accounts receivable process, also known as order to cash (O2C or OTC), is a business process that spans the entirety of the order processing system, from receiving the sales order to order fulfilment. It also entails logging an entry in the accounting books. The O2C team can function under various models, usually a shared service model or an outsourcing model where certain parts of the order management system are handled by a third-party.

The Order to Cash process starts with the order from a customer and ends with the ‘cash’ payment for that order. Order Placement and Management: The customer places the order through the sales function of the company, followed by the supplier organization ensuring that there are no delays in the order approval process or no order re-entries exist. Order placement and management is arguably the most important step in the order processing system. It is critical that the orders are accurate, and that the customer receives verification that the order has been placed. In fact, all the organization’s departments involved in the order processing system, must be flagged on time. In addition, automating the order management system is important, as not only are the business processes involved in the order processing system optimized, but inventory management will be reduced as well. Credit Management: Once an order is placed, the supplier credit department evaluates the customer’s credit risk. A proper credit management process involves a thorough review of the customer’s credit portfolio and aligning the risk against the supplier’s credit policy. This ensures that the suppliers are accepting orders from customers who will be able to pay them back. Centralizing an organization’s credit management system ensures a streamlined customer experience, as well as improved business processes. Order Fulfilment: Inventory management is a key component of order fulfilment. To avoid orders that cannot be filled, supply chain management must be properly executed, to check and update inventory in real-time. If, on the other hand, the order is processed but the product is out of stock, the customer is notified and the order is cancelled. Order Shipping: The order gets prepared for shipment, and is handed over to the carrier services. However, deliveries that are taking longer than expected must be flagged, with the carrier and the customer. After the delivery, the O2C team collects the following documents from the carrier service: Proof of Delivery:The document includes the list of goods sent and their quantity, signed by the customer’s warehouse representative acknowledging receipt of delivery. Bill of Lading:The detailed list of truck cargo in the form of a receipt that the shipper of the cargo gives to the person consigning the goods. Customer Billing or Invoicing: The billing and invoicing team generates invoices and delivers it to customers via email, postal mail, EDI, and other channels. Once the customer makes payment and the O2C team receives it, the O2C team marks the outstanding invoice as closed. Payment Collections: Payment collections are vital for any organization, especially when a company provides its goods on credit. However, if there is a lapse in the payment and the invoice remains outstanding beyond the terms extended, the customer must be flagged, and their credit must be put on hold. Cash Reconciliation and Ledger Management: Once the payment is received, it is matched with the outstanding invoice to reconcile cash. It is then added into the general ledger for the record and to reflect appropriately in the financial reports.

Quatrro BSS’ end-to-end solution provides a holistic view of the O2C process. This, in turn, serves to enhance overall operational and financial performance. The main aspects of the business covered by Quatrro include:

• Prepare, Verify, and Dispatch
• Order Management
• Customer Billing
• Customer Inquiries
• Cash Management
• Monitor and Follow-Up for Soft Collections
• Setup and Monitor Customer Master
• Bad Debt Analysis
• Order to Cash Reconciliations
• Order to Cash Aging Report

AR automation is the process of automating the repetitive, time-consuming, and error-prone tasks otherwise performed manually in the AR process. It can also increase the probability of generating invoices that are immediately approved and will be paid faster by customers. It helps the organization save time and avoid errors that are frequently found on invoices, which occur usually either due to human error or not being aware of the customer’s invoicing requirements. The key benefits of AR automation include:

• Faster internal invoice approval processes
• Reduced days sales outstanding (DSO)
• Faster payment collections
• Improved cash flow
• Greater security
• Increased accuracy
• Better customer experience
• Reduced distribution costs