Order to cash (OTC or O2C) refers to a set of business processes that involve receiving and fulfilling customer orders for goods or services. It is a top-level, or context-level, management term used to describe the financial component of customer sales. Marketing to lead, procure to pay (P2P), hire to retire, concept to launch, and sustain and retain are some other context-level business processes.
Businesses must optimize the O2C cycle in order to maintain smooth operations. O2C activities can have an impact on supply chain management (SCM), inventory management, and labor requirements. As a result, if a bottleneck occurs in one of the O2C steps, operations may suffer or be disrupted. Furthermore, O2C functions determine a company’s cash inflow and working capital. Any business process that requires profit, such as payroll, can be halted if invoicing or payment collection is delayed.
Oracle, SAP, and Workday are examples of major ERP system vendors that provide O2C services. These systems can enhance the O2C cycle with technologies such as order management, credit management, reporting, and data management.
Steps within the O2C cycle:
When a customer makes a purchase, the O2C cycle begins and continues through the company’s entire order processing system. The cycle is made up of several sub-processes that revolve around the following steps:
- A customer order is recorded.
- The order has been fulfilled or the service has been scheduled.
- The customer’s order is shipped, or the service is rendered.
- Accounts receivable creates and sends an invoice to the customer.
- The customer sends payment, which the company collects.
- The transaction is entered into the general ledger.
After the cycle is complete, organisations should collect data on O2C activity to identify weaknesses or inefficiencies and opportunities for improvement.
Difference between order to cash and quote to cash:
Quote to cash (Q2C) refers to the entire business process of selling a product. As a result, O2C is only one component of the Q2C cycle. Customer purchase intent, configuration pricing quoting (CPQ), and contract lifecycle management are also included in Q2C. As prices are determined, products and services are bundled, and negotiations are conducted, customer needs become more integrated into the Q2C lifecycle. O2C merely manages customer transactions.