What Is the Order To Cash Process and Why Is It Important?

The order-to-cash process encompasses all steps from when a customer order is placed up until the business is paid (the cash). Those steps include order management and order fulfillment, through to credit management, then invoicing and ultimately payment collection.

One of the most important aspects of an organization’s relationship with its customers is the Order to Cash (O2C) process. While businesses frequently become preoccupied with activities prior to order placement, such as marketing, optimizing the O2C process can occasionally be neglected. You must streamline your order to cash process. By doing this, you can give customers a better and quicker experience.

Introduction to Order to Cash Process

Why is the order to cash cycle important?

To fulfill customer orders by the deadlines set, a thorough order-to-cash procedure must be put in place. An established order-to-cash cycle can assist in lowering production costs while also raising productivity. Labor and expedited shipping costs can be decreased as a result of increased productivity. Monitoring each step in the order-to-cash cycle helps a business maintain high productivity, which boosts client satisfaction.

What is the order to cash process?

A company’s established procedure for facilitating customer sales and receiving payments is called the order to cash (O2C) process. Businesses frequently have distinctive order to cash procedures, which they regularly review and modify to meet their changing needs. As a result, their reputation can be improved because they actively manage their finances. The order to cash process frequently necessitates tasks completed by each department within an organization.

8 phases of the order to cash cycle

Regardless of specific business changes, each company may have its own order to cash cycle, but these cycles share many characteristics. Here is a thorough analysis of the typical order-to-cash cycle phases:

1. Order management

Order management is typically the first stage of an O2C cycle, which is where a customer places an order with a business. An order may be placed by a customer over the phone, in person, by email, or online. Companies that automate this step enable each related department to begin carrying out necessary tasks right away during the order fulfillment process. Order fulfillment can start right away once departments are alerted via automated notification processes, increasing the likelihood that an order will be finished on time.

2. Credit management

If a customer isn’t immediately paying in full for an order, this step of the O2C process verifies their credit. This step can also be automated by directing new clients through the entire credit approval procedure. Additionally, it might be advantageous to send past clients through the credit approval process if your business has not yet approved their credit. Early implementation of a credit management procedure can help avoid payment challenges at the process’ conclusion.

3. Order fulfillment

In a typical O2C cycle, the third step is to fulfill a customer’s order with the items listed in the order management step. Employees can avoid manually conducting inventory and pulling products by using appropriate software to maintain inventory, which can help this stage run more efficiently. Software can also highlight low inventory or out-of-stock items. This can assist a business in maintaining inventory levels and guarantee that all products are accessible at the time an order is placed.

4. Order shipment

The fourth step of this procedure describes how a business ships its goods to clients. Companies can deliver their products to customers using either their in-house logistics or outside logistics firms. Regular audits of a company’s logistics department can guarantee that deliveries continue to be reliable and on time. Determining this stage’s productivity can also lower labor and shipping expenses.

5. Invoice distribution

The invoice distribution phase of the O2C process is the start of the second half. This is how a business notifies its clients of the last payment details needed to settle their accounts. Invoices frequently include the items ordered, the costs of shipping, taxes, and other important order details. Companies can confirm the accuracy of their invoices and the distribution of invoices to the right customers by incorporating a quality control step into this process.

6. Accounts receivable

Payment information from clients who don’t automatically settle their accounts is frequently added to a company’s accounts receivable. This lists the total amount a customer owes a business along with the length of time the balance has been unpaid. Some businesses automatically notify customers of upcoming payments, which can increase the likelihood that customers will settle their accounts quickly.

7. Payment collection

Companies can decrease their payment backlogs and improve the precision of their payment systems by automating the payment collection system in the O2C process. Furthermore, the improved accuracy can aid a business in properly forecasting its finances, which can help executives make wise business decisions. Businesses that also educate customers on the best ways to settle their accounts can improve customer satisfaction and increase the likelihood that customers will make more purchases in the future.

8. Reporting

The O2C cycle’s final step describes how a business reports on its order fulfillment procedure. A business can find opportunities for improvement by producing comprehensive reports that highlight the entire O2C process. This can also assist a business in visualizing how each stage of the process influences the others, enabling it to develop quality control measures that reduce delays in order fulfillment procedures.

Important considerations for the order to cash process

There are many crucial factors to recognize before implementing an order to cash process that meets the needs of your company. Some important considerations include:


What is order to cash with example?

Order-to-cash is the entirety of a company’s order processing system. It begins the moment a customer places an order. Prior to that, everything was connected to a marketing, sales, or branding function.

What is order to cash process in SAP?

Order-to-Cash in SAP is a point of integration between Sales (SD) and Finance (FI). It is also known by the abbreviation OTC or O2C. A sales order from a customer is part of a business process that also includes delivery and invoicing. It includes SO, Delivery, Post Goods Issue (PGI), and Customer Billing.

Why order to cash process is important?

Why is the order to cash cycle important? Fulfilling customer orders within agreed-upon deadlines requires the implementation of a thorough order to cash process. An established order-to-cash cycle can assist in lowering production costs while also raising productivity.

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