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AR & O2C Automation

What is Order to Cash (O2C)?

The process of turning an order into cash is known as the “order to cash” (O2C/OTC) cycle, and it takes place once a customer puts an order and continues until they pay for it. Order to cash is also known as quote to cash (QTC), accounts receivable (AR), and other titles depending on the industry.

The business models used by order to cash teams vary; some choose shared services, while others could outsource specific steps in the accounts receivable process.

Let’s explore the order to cash cycle in further detail to comprehend its numerous subprocesses.

Order to Cash Process

  • Placing & Managing Orders The consumer or buyer places the order through sales as the first step in the O2C cycle. The supplier organization should then make sure there are no delays in order acceptance or order re-entries.

  • Managing Credit The supplier credit department assesses the credit risk of the consumers when an order is placed. A proper credit management process. By doing this, you can be sure that the suppliers are only taking orders from clients who can afford to pay them back.

  • Fulfilling Orders The inventory is continuously inspected and updated throughout order fulfillment to prevent any orders that cannot be filled. But let’s say that even though the order is filled, the item is no longer available or in production. To avoid any unpleasant complications with invoicing and payment, the customer must be informed right away, and the order must be canceled right away. By completing the purchase within the allotted time, the business avoids needless difficulty and gains the customer’s trust, both of which are essential.

  • Shipping Orders The order is then prepared for shipping and given to the carrier services, who deliver it to the customer, as the next step. The O2C team obtains the following paperwork from the carrier service after the delivery:

    • Proof of Delivery - The warehouse representative for the customer has signed the document, which also includes a summary of the items shipped and their quantities.
    • Bill of Lading - The full list of truck freight that the shipper of the cargo provides to the person consigning the items is known as a bill of lading.

    These bills are taken into account for the resolution process in the event of any further disputes.

  • Invoicing/Billing Customers Post-delivery invoicing is crucial to ensuring a simple and hassle-free payment from the client. The team in charge of billing and invoicing creates bills and sends them to clients by fax, EDI, email, snail mail, and other means. The O2C team closes an open invoice after the customer pays and the team gets the payment.

  • Chasing/Collections/Dunning Companies have specialized collections teams that are in charge of collecting unpaid invoices. Chasing/Collections/Dunning can be done over the phone or email. This procedure is essential, especially when a business sells its items on loan. The customer must be marked and their credit must be put on hold if there is a lapse in the payment and the invoice is left unpaid. The company should evaluate this on a regular basis to stay informed about estimates for bad debt and make decisions accordingly.

  • Cash Application/Reconciliation In order to reconcile cash, a payment must first be matches with the open invoice The general ledger is then updated to reflect the addition. To prevent adding more work to the collections department’s responsibilities, any dispute that results from this should be settled right away.

What Makes AR & O2C Important?

Accounts receivable, also known as order to cash, is a crucial financial process that has an impact on a company’s customer connections and revenue growth. Improving an organization’s order to cash process has a consistent impact on the company’s business development and revenue. The more efficient a company’s operational Order to Cash processes are, the less time they will likely spend on collections, and analysts can concentrate on how to enable commercial growth by reducing and controlling risks rather than on erroneous payments and invoices.

Issues AR Teams Face

The fact that the accounts receivable teams operate in silos is their largest obstacle. This implies that credit teams are completely unaware of the current collection efforts. There are more write-offs as a result of this siloed culture’s poor customer service and higher days sales outstanding (DSO).

Let’s look at some typical issues that O2C teams encounter:

  • Multiple Order Sources Orders can be placed directly from the supplier’s website, over the phone, via fax, or via email. The entire O2C process could suffer if there is a flaw in the order processing system. Manual order taking further slows down the procedure. Incorrect order processing can also negatively affect customer satisfaction and result in non-payment on the part of the client.

  • Manually Invoicing Customers have a variety of preferences for billing. For instance, whereas SMBs prefer paper-based invoices, large customers prefer having their invoices submitted to their AP portals. AR teams manually produce and deliver error-prone invoices to meet everyone’s demands.

  • Accepting Different Payment Methods Accounts receivable teams frequently struggle to accept different payment types from their international clients. For instance, some consumers want to pay with checks, while others prefer to utilize electronic methods like ACH, credit cards, BACS, and SEPA. Foreign exchange fees are another cost of accepting foreign payments.

  • Slow & Manual Collections The customers that collections teams must manually contact each day are prioritized. Then, without having access to current information on the customer’s credit risk and payment posting status, they decide on this and establish their dunning approach. As a result, they occasionally miss the at-risk clients in favor of calling the low-risk client who would have made the payment on time.

  • Manual Dispute Resolution The deductions management staff manually gathers claim documentation, delivery evidence, and bill of lading, performs deductions research, and attempts to settle issues when customers raise them. The procedure takes longer as a result, but AR teams miss out on chances to recover money from erroneous deductions.

  • Human Error Accidents may occur if there aren’t integrated operations from order to cash. For instance, a collector contacting a consumer is unaware of the status of the payment posting. As a result, the collector might contact a client who has already made a payment, which would result in a bad client experience and a slow recovery.

  • Increased Operating Cost Resource costs are higher for large businesses. In addition, there are other costs associated with the order to cash process cycle, including those related to billing and invoicing as well as bank lockbox fees. Working capital is frequently impacted by the increasing cost of doing business and the slowly recovering receivables.

How can the order to cash process be improved? is a question that keeps coming up in the ever-changing financial world, which also gives rise to unique trends or patterns. As a result, executives in AR across the globe have realized how crucial automation is to operations that lead to payments.

  • End-To-End Automation of Order to Cash The automation of particular O2C activities, such as cash application, has been a priority of AR leaders over time. Over time, though, they have come to understand the value of “end-to-end” process automation. The future of automated order-to-cash systems is an integrated accounts receivables process. In addition to linking the various AR processes, an end-to-end automation platform enables realtime data flow between the processes to support data-driven decisions. The future of automated order-to-cash systems is thus an integrated receivables process.

  • The Need for Realtime Data Realtime visibility on vital metrics like DSO, bad debt, and risk exposure is essential for a finance leader of a large organization. Realtime AR data is crucial, as the finance leaders have realized with the start of the pandemic and macroeconomic volatility. In order to acquire useful information from reports and dashboards, they are eager to monitor the status of their global receivables in real-time.

  • Increased Focus on Cash Flow Optimization The firms are concentrating on enhancing their working capital by reducing DSO and bad debt reserves due to the uncertainty and volatility of the economy. Any organization relies on cash flow to function, and by using AI-powered order to cash solutions, businesses may enhance their cash inflows.

  • Faster Implementation Across the Globe Less expensive software and IT solutions is the most important criteria for any digital transformation venture. This is due to the CFOs and other finance executives’ desire to examine their ROI more quickly. They concentrate on putting into place automated order-to-cash solutions that are simple to integrate with their ERP systems.