Order-to-Cash: The definitive guide to a complex process

A seamless order-to-cash (commonly known as OTC or O2C) chain is the most basic operation every company needs to achieve its core business objectives, but that doesn’t make it simple. Managing a basic subscription service can be straightforward, but if you offer a wide range of usage-based billing options and subscription models, inefficiencies and manual data compilation can quickly drag down your order-to-cash process.

There are excellent platforms and cloud solutions, like Oracle NetSuite, that empower businesses with end-to-end solutions for O2C, but it’s incredibly difficult to create a one-size-fits-all product. O2C speaks directly to how customers experience your brand, and it can have a huge impact on a business’s efficiency and bottom line. That’s why every company has to become an expert in their O2C process and support it with software integrations and partnerships that make it seamless end-to-end. 

Intimidated? Don’t be. It’s a complex process, but we will explain exactly how it works and what it takes to keep transactions flowing and your business growing. 

The impact and importance of order-to-cash

Unlike a marketing pipeline or nurture campaign, O2C doesn’t leave its mark on the customer experience by creating desire and building value in your products and services. Rather, it’s the process that fulfills your promises when they sign a service agreement or make a purchase. These include things like:

• Confirmation: Did you provide them with policy information and a correct receipt?
• Payment: Were they charged the right amount in a timely fashion?
• Access and downloading: Was the customer able to access, download and deploy your services promptly and efficiently? 
• Shipping: If your business involves physical products, was the product shipped quickly, safely and with proper tracking information?
• Support: Can they easily contact you for assistance with cancellations, refunds, troubleshooting, etc.? 
• Contract amendments: Are changes to contracts clearly communicated, accurately applied and properly documented in your system? 

Remember, your O2C process is a part of the product your customer pays for. In fact, going through this process will be one of the primary ways customers interact with your business – which means this cycle has a significant impact on customer satisfaction. If basic activities like invoicing, payments and amendments are bulky and frustrating to navigate, it can quickly lead to a damaged reputation, sluggish sales and stagnant growth for years to come. On the other hand, a seamless O2C experience will give clients another reason to trust your company and to share positive feedback along the way.

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Key steps in the order-to-cash process explained 

A great O2C process culminates with successful delivery and payment, but getting to the finish line in a digital ecosystem requires an incredible feat of communication and coordination – and it has to run smoothly. 

ERPs usually offer excellent solutions for finance teams handling various order-to-cash tasks. But when complex billing and revenue recognition needs extend beyond the ERP’s out-of-the-box capabilities, the platform may require additional enhancements and add-ons to expand its native functionality. These extensions integrate seamlessly within your ERP’s environment, and in some cases, your team won’t even know they’re using a partner’s app. 

In general, your Cloud ERP platform of choice will need to take care of the following O2C activities:

• Customer purchase. No matter what your company’s purchase process looks like, you’ll have to collect all the information you need at the very start of your O2C process. In addition to that, your Cloud ERP platform will need to interact efficiently with your CRM to optimize how customer data filters through the system every step of the way. 
• Order management. After checkout, the customer’s information must be routed to the appropriate department, including fulfillment, billing and credit approval and alerts must be sent for any issues. 
• Credit management. If customers have applied for credit, your system should confirm their eligibility internally or through your partners and confirm with fulfillment. 
• Order fulfillment. The system must check inventory availability and allocate it for delivery by your purchase order workflow. If items are back-ordered or out of stock, alerts need to be sent to customer service. Ideally, a great checkout page will be linked directly with fulfillment so customers know a product is available before they pay. 
• Shipping. While your software can’t pack and tape (yet!), it will be responsible for sending shipping confirmations, tracking information to customers and recording it in your system. 
• Invoicing and accounts receivable. If your business relies on invoices, these should be generated through invoice automation, sent and logged with accounts receivable to track the payment process.
• Collections. While it’s an unpleasant part of doing business, alerts should be automatically sent for delinquent accounts and forwarded to collections as necessary.
• Reporting and data management. One of the most beneficial parts of the O2C process is that a great platform can automate reporting and data mining processes to track your success, provide you with market insights, document the customer journey and help take your business to the next level. 

Order-to-cash and quote-to-cash: Understanding the differences

Even if you already understand the basic principles behind O2C, it can be easy to confuse this cycle with the similarly named process known as “quote-to-cash” (Q2C). The biggest difference between them is the number of tasks they cover.

Much like an O2C process, Q2C includes steps like order management, order fulfillment and billing. But instead of starting with a customer’s order, Q2C adds several preliminary steps to your O2C process. 

Q2C processes are common among businesses selling project-based services and configurable products. If your business follows one of these processes, you’ll begin by:

• Configuring offerings to satisfy a customer’s needs
• Creating and sharing a quote
• Negotiating prices or other elements of your offering
• Setting final terms

At this point, your customer will place an order and you’ll continue with the steps included in the O2C process.

Common order-to-cash challenges and bottlenecks

Breakdowns in any part of the O2C process can frustrate your team, bog down your workflow and ultimately lead to customer dissatisfaction and lost revenue. On the upside, that’s why most ERPs, payment and billing services have gotten pretty good at it. There are reliable solutions for most problems that might arise, and there are only a few key areas where businesses need to be especially vigilant and ready to invest in valuable integrations. 

Third-party payment services

Many payment processing platforms like Stripe are designed to work with ERP platforms like NetSuite, and they can deliver a lot of flexibility for your business and value for your customers. These systems are usually designed for a wide range of use cases across many industries, so there’s often some manual work and platform shuffling every team needs to do to meet their specific needs. 

At the same time, adding more payment gateways can slow down your O2C timeline, add to the finance team’s workflow and introduce errors to your workflow that burn time and resources – and there are plenty of potential pain points. ACH and credit card payments, reconciling payment data across platforms, refunds and chargebacks are all potential bottlenecks if platforms aren’t seamlessly integrated with an ERP.   

Billing

Manual billing processes can quickly eat into time and resources, and it’s easy to fall behind and make mistakes. Also, with multiple partners and software systems needing to communicate for O2C to be successful, Know Your Customer (KYC) and Know Your Business (KYB) compliance issues can become a huge financial and legal liability. 

For instance, recurring billing scenarios involving royalties and fees that change based on customer use can add several layers of complexity to the process. While straightforward on paper, these variations make it difficult to automate billing, comply with ASC 606 standards and regulations and impact customer data analysis and forecasting. 

Reconciliation and compliance 

It would be great if every product integrated seamlessly with your ERP, but the traditional solution is for employees to manually record payments and apply deposits, opening the door to costly errors and murky audit trails. 

When matching payments with invoices has to be handled manually on an invoice-by-invoice basis, it’s easy for discrepancies to go undetected. These issues produce downstream effects for auditing and compliance, increasing the risk of misallocated funds and slowing down your order-to-cash cycle. 

Data accuracy and reporting

Any lags in data systems are a potential operational and reporting liability, and there are many ways these inefficiencies can be introduced to the O2C process. A lack of real-time data because of disconnected systems, bottlenecks in reporting, and manual entry and calculation processes can all delay reporting and degrade its quality. Even lacking the proper tools and integrations to transfer data from the ERP to your business intelligence platform in a seamless, error-free format can affect forecasting accuracy and decision-making. 

Scalability

During periods of rapid growth, manual processes that scale poorly can expose weaknesses in the existing order-to-cash process. Any increase in billing complexity or scope may quickly become resource-heavy, highlight platform limitations and ultimately lead to delayed invoicing and customer queries. 

Optimizing O2C to boost revenue and performance

When things go wrong in the O2C process, profits and your team’s morale suffer. Managing angry customers is hard enough, but when the systems for dealing with errors, inefficiencies, compliance issues and reconciliation are just as painful and bulky, your O2C process can quickly spiral out of control.

Fortunately, there are some excellent solutions to these challenges that make it easy to resolve problems or avoid them in the first place. That saves everyone time, energy and money while growing your business with happy customers who keep coming back.

You can begin optimizing your O2C cycle by:

1. Considering every step in your process

Since the O2C process consists of multiple steps, inefficiencies at any one of these points can affect the cycle as a whole. Because of that, performing a full, step-by-step evaluation of your order-to-cash cycle rather than a targeted approach gives you the context you’ll need to pick ideal investments. 

Once you’ve analyzed each element of your O2C cycle, think about what improvements would have the most significant impact compared to the work it would take to implement them. That can help you find “low-hanging fruit” and prioritize your improvement efforts.

2. Automating billing and invoicing

Subscription services often require complex billing processes that rely heavily on slow manual work. Whether it’s invoice creation, contract modifications, customization or delivery, any opportunity to automate the process can save you time and money. 

Smart integrations extend your native ERP’s capabilities to automate all aspects of your invoicing and billing chain. By eliminating spreadsheets and one-by-one invoice adjustments, you can accelerate your entire O2C cycle while reducing costly errors. 

ZoneBilling is a great example of the value the perfect tech stack can provide. When New Zealand telecommunications giant Devoli experienced revenue growth from $12 million to $100 million in just four years, its legacy billing system was unable to keep up. A partnership with Zone & Co provided Devoli with seamless integration between NetSuite and existing familiar tools that supported current and future scalability needs, reducing the time spent on billing tasks. 

3. Improving payments 

The same ERP advantages that billing integrations provide can be leveraged to streamline payment processes as well. By maintaining an enterprise-wide data system, Accounts Receivable, Accounts Payable and leadership will also benefit from automation and error reduction. 

Another key feature of integrations that extend native ERP functionality is that they can break down data barriers between third-party payment platforms. That minimizes the number of logins your team needs to alternate between to get the information they need and prevents redundancies and mistakes in your O2C cycle.

4. Providing reconciliation relief

Any time data is siloed or isn’t packaged in a usable format for your ERP and business intelligence (BI) platforms, your team will need to compile it manually in those all-too-familiar Excel spreadsheets. On top of being error-prone, these processes become an exponential liability as your business grows and scales. 

With that in mind, ensuring your data is ready for automated reconciliation is a must. In fact, if you don’t already have a reconciliation tool in place, you’re probably already experiencing the pain of bottlenecks and lengthy month-end closes. The top integrations can speed up the reconciliation process by 95%, accept a wide range of file formats and allow your finance team to take care of reconciliation tasks directly within your ERP.

5. Increasing supply chain visibility

One of the most important analytical views every business needs is its supply chain. This has become increasingly critical in recent years as the repercussions from the pandemic are still rippling through many industries. 

By centralizing all of your business’s data in your ERP and deploying integrations that reconcile and replicate it directly in tools like Power BI, you’ll gain instant insights into supply chain issues that can wreak havoc on your O2C cycle.

6. Unlocking real-time data and tracking

Ensuring your ERP, CMR and payment systems are all seamlessly integrated can deliver real-time visibility into all your KPIs, including invoice accuracy, processing time, order cycle time and payment turnaround. The best integrations handle this inside your ERP environment and export data directly to your BI tools.  

7. Pinpointing frustrations

Your billing and finance teams know exactly where they’re getting bogged down, and in most cases, it involves hours spent compiling spreadsheets and reconciling data by hand. Crucially, what affects one team will inevitably affect another. 

Is billing complaining about ripping up and replacing contracts, finance can’t keep their matching straight, and your analysts are pulling their hair out dealing with errors and omissions? A single solution may be able to solve all the problems at once by automating key workflows across the business. 

How is artificial intelligence affecting O2C systems?

The AI revolution is having a two-pronged effect on businesses whose O2C cycle revolves around subscriptions and usage-based contracts. First, these systems can improve O2C directly by helping CFOs and other finance professionals enjoy improved O2C system credit scoring, fraudulent payment protection and enhanced pricing decisions. Generative AI tools can also help validate deductions and claims, significantly reducing revenue losses in the process.

Second, AI services that are sold as add-ons or as a usage-based option are often managed through third-party billing systems. It can be difficult to integrate them with your ERP, causing more bottlenecks and burning hours of your team’s time to resolve. Worse, these issues can make revenue recognition and compliance a nightmare, and it’s why more businesses are choosing solutions that allow these transactions to be handled directly in their ERP. 

Configure, price, quote software and the O2C process

Configure, price, quote (CPQ) software is designed to help finance teams configure orders, determine pricing and deliver quotes. While these steps are technically part of the Q2C cycle, CPQ software can still indirectly improve O2C efficiency.

For example, CPQ programs can help you send accurate price estimates faster than you could manually. That will give your Q2C process a strong start, and you’ll be able to maintain this momentum during billing and other parts of the “official” O2C process. Because of that, this software can be helpful for any business that uses Q2C.

Like many other types of financial software, today’s CPQ systems have started to take advantage of AI and machine learning. Thanks to AI, these programs can now suggest configurations and pricing based on past customer preferences and sales data.

Could a CPQ program help your company?

Your business might benefit from a CPQ system if it’s:

• Losing deals because it can’t generate quotes quickly. Since CPQ software can generate reliable quotes at high speed, it’s an ideal solution to this problem.
• Having trouble keeping up with demand. Software solutions commonly deliver higher accuracy than manual data entry, and that’s definitely the case for CPQ systems.
• Struggling to generate quotes for complex revenue models. Building quotes for subscriptions and other recurring pricing models can be tricky, but the right software can simplify this.
• Sending inaccurate quotes to potential customers. The added accuracy offered by CPQ systems can help you avoid reputation-damaging pricing mistakes.

Solving the order-to-cash puzzle

Every business is different, and as much as technology has revolutionized the world of digital commerce, most businesses still experience gaps in the O2C processes that represent big competitive advantages – if they can solve them. The fact is, order-to-cash is often the last thing businesses think about when they go live, but it’s one of the first problems they encounter when they start to scale. 

Optimizing your business’s complex order-to-cash cycle to keep pace might mean you need to consider adopting integrations that extend the capabilities of familiar systems and reduce reliance on manual processes. Every business model has unique challenges that impact subscription and usage-based billing at every growth stage. Innovative software solutions that optimize O2C allow you to unlock your business’s maturity potential and deliver returns that scale alongside you every step of the way.  

To find out more about how to streamline your O2C process, read our white paper Optimizing order-to-cash at every growth stage.

FAQs

What is the order-to-cash process?

The order-to-cash process consists of every step a business takes between a customer placing an order and the company receiving payment. This process includes tasks such as order management, order fulfillment and invoicing.

How does O2C work?

The inner workings of your business’s order-to-cash process will depend on the strategies you use in your system. While it’s possible to handle this work manually, using software for O2C tasks will improve the accuracy, speed and efficiency of your process.

What is the difference between O2C and Q2C?

The O2C cycle covers multiple business processes dealing with customer orders and payments for products and services. Q2C includes the entire O2C cycle, but adds several preliminary steps such as configuring offerings to satisfy a customer’s needs, creating and sharing quotes, negotiating prices and setting final terms. 

What is the end of the O2C process?

The O2C cycle ends when a customer’s order has been delivered and their payment has been processed. Beyond this point, the system you use for O2C should help you make future improvements by offering automated reporting and data management features.

Is order-to-cash the same as accounts receivable?

Accounts receivable plays a crucial role in the O2C process. They manage outstanding bills owed by your customers, collect payments and (if necessary) refer these issues to collections. 

What are the risks of the order-to-cash process?

While going through the O2C process, your company may encounter a variety of challenges and bottlenecks. Manual billing and reconciliation, third-party payments, scaling issues and data inaccuracies can all bog down orders and payments, frustrate your customers and impact compliance and reporting.