Technology continues to drive business innovation, with companies finding new ways to improve their services and enhance operational efficiency. Order-to-cash (O2C) cycle optimisation is one such strategy, giving businesses the power to refine their offering and build better relationships with new and existing customers.
But what exactly do we mean by the order-to-cash cycle? And how can you improve your O2C processes in such a way that they benefit both you and your customers?
In this guide, we’re providing a complete overview of the order-to-cash cycle. We’ll explain what it is, and the steps involved, before showing you how you can optimise your O2C to reap the benefits such improvements can bring to your organisation.
- What is the Order-to-Cash Cycle?
- What Steps Are Involved in the Order-to-Cash Cycle?
- How to Optimise Your Order-to-Cash Cycle
What is the Order-to-Cash Cycle?
The order-to-cash cycle is used to define how a business manages its ordering system. It covers the entire sales and ordering ecosystem, from marketing and sales, right through to the customer transaction and aftercare process.
Every transactional business relies on an order-to-cash cycle, but not all enterprises take the time to optimise it. In refining the processes through the system, you can attain a wealth of benefits – reducing inefficiencies, automating processes and freeing up resources throughout your O2C infrastructure. It can also help you deliver a superior level of customer service.
Many businesses focus the bulk of their resources on gaining customers and new orders. O2C optimisation shifts some of this to ensure a streamlined ordering process, with every step serving to enhance the customer journey and experience.
Having an efficient order management system is vital in maintaining high O2C standards. Increasingly, businesses have come to lean on technology to manage their ordering cycle, with software like ERP (Enterprise Resource Planning) making it easy to automate processes and unify interfaces to ensure a positive customer experience.
What Steps Are Involved in the Order-to-Cash Cycle?
Here we’ve summarised what the order-to-cash cycle is and touched on the benefits of optimising it, but how does it work in practice?
Here, we take a step-by-step look at a typical order-to-cash cycle.
Step 1: Order Management
Order management falls at the beginning of the O2C cycle. It’s the point at which a customer converts through a dedicated sales channel, whether that’s through an e-commerce site, in-person or over the phone with a customer service representative.
From here, new orders must be managed with optimal precision, speed and accuracy. This typically involves an automated process, wherein an order ticket is raised and passed to processing and fulfilment. In fact, a whole host of activities should occur as soon as a sales order goes through. From alerting the warehouse, to sending out an invoice, to emailing the customer with any relevant regulatory documentation.
Step 2: Credit Management
Depending on the product or service, many businesses may offer a credit facility to new and existing customers. Such an offering has become commonplace for e-retailers, and modern O2C management software provides an efficient way to automate such credit-based transactions.
Customers expect seamless and efficient credit facilities when making purchases on or offline. As such, businesses should provide adequate credit provision, with streamlined application and eligibility guidance and fast approval/decline times.
Again, software can assist with prompts highlighting customers with poor credit terms, allowances made for purchases up to a certain amount, etc. Where your eCommerce site is integrated with your ERP solution, your customers’ terms and pricing can be reflected in your online store. Essentially your software can be used to enforce your credit control rules on and offline, to ensure you protect cashflow whilst optimising sales.
Step 3: Fulfilment
Arguably the most critical step in the O2C, order fulfilment is the act of preparing a product or service for shipping. Its success hinges on optimal inventory management, as well as reliable and accurate communication between internal sales, warehousing and logistics personnel.
Businesses with a high volume of sales orders typically use tracking codes and product SKUs to ensure accurate and timely fulfilment. ERP software is particularly effective in this arena, enabling different departments to track single inventory items through a complete ordering cycle with any lags in dispatch times automatically visible, so teams can take timely action.
Step 4: Delivery
Delivery may sound like a simple component within the O2C cycle, but it relies on regular auditing and absolute accuracy to ensure an efficient and reliable service. Here, seamless integration with fulfilment and order management processes is critical, ensuring that the right items find their way to the correct customers in a timely fashion.
From a logistical standpoint, shipping is among the most complex stages of an O2C. Not only does it require the efficient coming together of multiple internal departments, but also the need for accurate and timely cooperation with third-party carriers.
Today’s modern ERP software often includes efficient transport scheduling apps which provide your entire team with end-to-end visibility of an order, from point of purchase to the point of delivery.
Step 5: Accounts
The accounts side of the O2C cycle happens concurrently with fulfilment and shipping. Encapsulating invoicing, accounts receivable and collections, it ensures consistent cash flow, while also allowing for automated payment detection to speed up the fulfilment process and minimise order backlogs.
The shorter and more efficient the accounts and invoicing process, the faster the lead times and the healthier the cash flow. That’s why many businesses have invested significantly in digitising their accounting processes, ensuring that they can keep pace with other automated processes in their O2C infrastructure.
Increasingly, businesses are investing in self-service customer account portals. This is a secure online facility that allows your customers to manage their account with you 24/7. With data delivered in real-time direct from your back-office system, your customer has access to their order/quotation/delivery history and can easily make payments online.
Step 6: Order Completion and Data Management
The O2C cycle doesn’t end when an order ships; nor does it when a customer receives it. Instead, the endpoint of the process comes after the sales and order information has been stored accurately in the system, triggering automated aftercare and remarketing processes.
Accurate data management is essential in boosting customer retention and the opportunity for repeat custom. ERP software can help to centralise and unify such data, ensuring it’s easily accessible by all key stakeholders within the business and related prompts are automated in the software to highlight relevant upselling and follow-up procedures for your customers.
How to Optimise Your Order-to-Cash Cycle
While there’s no one-size-fits-all solution to optimising an order-to-cash cycle, there are several tried-and-tested best practices that can help elevate your O2C and improve performance for both you and your customers.
- Look for efficiencies in every O2C process – the ‘Amazon effect’ has placed huge demands on web retailers, with customer expectations at an all-time high in terms of product choice, pricing and shipping times. As such, it’s critical that you seek to find efficiencies throughout your O2C – ensuring that customers enjoy a fast and efficient service after placing their order, whether you operate on or offline. This may also involve reviewing your current suppliers in order to get better deals/lead times etc.
- Integrate your systems – the most powerful way to optimise your order-to-cash cycle is by integrating every system and process within the sales and ordering infrastructure; this includes ordering, fulfilment, inventory, accounts and customer data management. ERP software can unify your entire O2C infrastructure, with a single interface and modular solutions allowing for seamless processing at every step of the purchasing and order journey. It can also integrate seamlessly with any related mobile apps you require to ensure the O2C process is as efficient as possible. In doing so, you can then set up related KPI dashboards in your software to ensure your entire team has immediate visibility of any lapses in your O2C cycle in real-time.
- Invest in technology – automation is a fundamental part of facilitating rapid order fulfilment and processing. Aside from ERP software, consider investing in technology to support each process within the order chain, whether that’s specific inventory management tools, courier system integration, a warehouse management solution or EDI integration. Such investments may hit cash flow in the short term, but it should pay dividends in terms of having the ability to process and manage orders at scale.
- Audit and monitor your O2C – maintaining peak order efficiency relies on regular auditing and management. Even with automated processes in place, bottlenecks and irregularities can occur, so regularly monitor and audit sales metrics and KPIs to ensure that your order-to-cash cycle continues to deliver in line with business objectives.
Optimising your order-to-cash cycle is just one way to improve business efficiency and realise your ambitions for growth. For more information on how Intact iQ can help your business optimise logistics, check out our new Transport Scheduler eBook.