Order to Cash | O2C

Order-to-cash is an important business process that manages full lifecycle of a customer order starting from customer order receipt and ends when payment is received.

By streamlining Order-to-cash process businesses can reduce cost, improve customer relationship and increase overall efficiency.
Order-to-cash is also known as OTC and O2C.

Let us understand Order-to-cash process. 

Order Management >> Credit Management >> Order Fulfilment >> Shipping >> Invoicing >> Account Receivables (AR) >> Data Management & Reporting

1. Order Management: The first step of O2C process is Order management. The process starts once customer places an order, customer may place the order through company portal/ ecommerce website / on call / email. Once order received and confirmed, it is sales department's responsibility to validate the order by checking few things such as product, quantity, price, availability, customer & delivery details etc., after checking these information sales department does the order login in their system (enterprise resource planning - ERP or order management system - OMS) and send a confirmation (acknowledgement) of order  with delivery date and other relevant information to the customer.

2. Credit Management: Once order login completed, the data of new orders are transferred to the Credit department automatically by ERP/ OMS. If credit term is applicable, credit department checks for credit worthiness of the buyer.

If it is a first time customer, the department analyzes customer's financial history, business credit score, financial stability, payment behavior etc. after analyzing all these details, credit department avail eligible credit limits to the customers.

If it is returning customer with existing credit limit, the credit department checks the value (amount) of the new order, if it is within the existing credit limit it's fine otherwise the order goes to credit block.  

If it is returning customer without existing credit limit, the credit department treat it as a new customer and analyze it's credit worthiness.

All orders except prepaid (100% advance payment) orders should be on credit block by default, and the one should be unblocked as per the allocated credit limit.

3. Order Fulfillment: Order fulfilment is the process of keeping the finished goods at distribution center temporarily, picking, packing, shipping & delivering of goods at correct customer address.

Picking: In a warehouse different products are stored at different locations. Once an order is logged in to the system the information gets transferred to warehouse system (WMS) too, now the responsibility of warehouse team is to retrieve the ordered product from stored location without any error, this process is called & picking.

Packing: The products which are picked for shipping have to be packed correctly as per the guidelines and industry standard so that the product doesn't get damaged during transit.

Labeling: Labeling is also an important part to fulfilment, correct labels needs to be attached with the product, invoices & other custom documents are also attached along with the product for further requirements.

4. Shipping: Shipping is an important part of O2C process. Once products are manufactured and sent to the warehouses or distribution centers where picking & packing is done, the next step is to arrange transport & deliver (to customer) the order at right place on right time. In this step transport department does the analysis and finalize the mode of transport, whether the product will be shipped through roadways, railways, waterways or airways. Then the department needs to choose a carrier based on their analysis and dispatch the product.

Track & Trace: In between dispatch of the goods from the warehouse & arrival of at customer's premises, the order needs to be tracked and updated in the system so that if customer wants to check the status of his order, he can go to the website and click on tracking link to get the update of his order.

5. Invoicing: Proper invoicing is crucial for financial management. While generating invoice the team needs to check few things properly such as customer details, price, taxes, discount, shipping charges, payment terms. Once invoice is created it must be sent to the customer either automatically by system or by manually.

6. Accounts receivable (AR): Account receivable (AR) is a crucial process, once invoice is sent to the customer, it's AR department's responsibility to collect the payment on or before due date. AR keeps track of credit line, payment due dates, customer wise outstanding, collections etc. and as per the ledger statements they keep sending payment reminders to the customers periodically until payment received.

7. Data Management & Reporting: All data starting from order creation and ending with payment receipt are captured using ERP system or manually using spreadsheets, the data flows from one step to another which is accessible to all departments (based on the provided access).

Example:
Let us understand this with an example, suppose a customer placed an order and the order management department receive order details, OM team does the order login and other formalities and update all data in the system, the data flows by the system to the next level where credit management team analyzes the data and allocates credit limit to the customer, then the credit information along with other details flows to the fulfilment department where the team takes care of all the activities, after that the outbound/ logistics team ship the goods and update all tracking information in the system, customer service team gets all the data and creates invoice and sends to the customer, accounts receivable team sends payment reminders and does follow-up based on the invoice data, once payment is received all details (order no, invoice no etc.) are updated in the system and finally all these data are used to create various reports.