How to Optimise Your Order-to-Cash Process

Do you ever find yourself bogged down by the complexities of managing orders and ensuring timely payments from your customers? 

You're not alone. For many business owners, navigating the order-to-cash (O2C) process—where orders are placed, fulfilled, and payments received—can feel like a never-ending maze of challenges. From supply chain disruptions causing delivery delays to constant price changes confusing your customers, traditional methods just aren't cutting it anymore.

Take, for example, a leading medical distributor grappling with a staggering increase in pricing errors due to outdated systems and limited resources. Such inefficiencies not only strain customer relationships but also impact your bottom line, leaving money on the table that rightfully belongs in your pocket.

But fret not—there's a solution at hand. By embracing modern technology and automating key aspects of your accounts receivable process—from managing credit limits to invoicing and reconciling payments—you can streamline your operations and accelerate cash flow. Imagine smoother order processing, happier customers, and above all, a healthier balance sheet with increased profits.

In this blogpost, discover practical strategies to optimise your O2C process and unlock new growth opportunities. Learn how modernising your approach can lead to enhanced efficiency, cost savings, and ultimately, increased profitability. Don't miss out—empower your business today!

The Gains from Optimising O2C Processes

Optimising your O2C processes isn't just about operational efficiency—it's about seizing untapped potential for financial growth. Mastering your Order-to-Cash (O2C) processes can significantly impact your bottom line. 

According to a 2020 BCG report on O2C platforms, businesses can potentially increase revenues by 1% to 3% annually through strategic enhancements. This isn't just about numbers; it translates into real profits and heightened customer satisfaction.

Consider the case of a leading B2B industrial manufacturer. By leveraging advanced process-mining data analysis in its O2C operations, the company uncovered critical insights. They identified broken processes causing leaks across multiple stages, amounting to significant losses of 3 to 5 percent of EBITDA. In simple terms, addressing these inefficiencies could mean unlocking millions of dollars in new business opportunities.

Diving deeper into their O2C data, the industrial manufacturer encountered a surprising revelation about Key Performance Indicators (KPIs). On the surface, bad debt seemed minimal, a mere 0.1 percent of sales. However, a meticulous examination uncovered a significant oversight. Credit memos, a leakage resulting from a weakened validation process due to insufficient incentives for monitoring, were not factored into the equation. When considered, the bad debt figure ballooned to around 0.4 percent of sales.

These losses, previously invisible to the collections department, underscore the importance of a comprehensive approach to O2C processes.  Imagine the impact of reclaiming even a fraction of these overlooked funds. 

When combined with strategies like optimising working capital and boosting productivity, the potential for unlocking substantial business value becomes evident.

By identifying and rectifying inefficiencies, businesses can not only enhance profitability but also strengthen their financial health and competitive edge. Discover how strategic O2C improvements can lead to significant revenue gains and operational excellence, positioning your business for sustained success.

Using the Data Generated By Modern Business to Your Advantage

The evolution of O2C processes from analog chaos to digital sophistication marks a pivotal shift in business efficiency.

Decades ago, the Order-to-Cash (O2C) process was synonymous with chaos—handwritten purchase orders, faxed invoices, and analog workflows ruled the day. However, today's landscape is vastly different, thanks to a plethora of platforms and software options transforming the O2C journey into a streamlined, digital affair.

Technological advancements have ushered in a new era, where digital invoicing, real-time tracking, and centralised information hubs bridge the gap across sales teams, warehouse personnel, accounts payable, and customer service. The result? A synchronised ecosystem where everyone has access to the same information instantaneously.

A standout feature of this modern O2C process is the wealth of data it generates. Workflow processing software, integrated seamlessly into the operations, provides data at every step.

These metrics shed light on both efficient processes and areas needing improvement. 

In the past, companies relied on stories and anecdotes to assess their O2C processes. Now, with the advent of advanced digital capabilities, enterprises can extract hard data from their Enterprise Resource Planning (ERP) systems and conduct granular analysis at the transaction level.

This marks a pivotal moment where decisions can be grounded in concrete information rather than subjective impressions.

These new tools not only offer precision but also scalability. Organisations can now analyse vast volumes of intricate details, allowing them to delve into the nuances of their O2C processes on a grand scale.

By harnessing data-driven insights from modern ERP systems and workflow software, businesses can pinpoint inefficiencies, optimise operations, and enhance overall performance.

Investigating the Order to Cash Process

Deepening your understanding of the O2C process isn't just about improving efficiency—it's about uncovering hidden opportunities that can drive financial performance and customer satisfaction.

In the quest for operational optimization, many businesses tend to overlook the complexities of their order-to-cash (O2C) processes, opting instead for quick wins.

However, those willing to delve deeper into their intricate O2C operations often discover more substantial opportunities for lasting improvements.

The heartbeat of a business's financial health lies in its accounts receivable ledger, encompassing aged debt and days sales outstanding (DSO). This treasure trove holds valuable insights into inefficiencies within the O2C process, offering a roadmap to enhance cash flow.

Manual processes, the usual suspects behind these inefficiencies, cause bottlenecks that delay payments and hinder cash flow. The result is a dent in a company's overall financial health. 

Executive leaders and decision-makers can unlock significant savings by gaining improved visibility into O2C process breakpoints. These are the critical junctures where inefficiencies lurk, impacting the bottom line in ways traditional metrics may not fully capture.

In essence, the journey towards O2C optimisation demands a willingness to explore beyond the surface, to navigate the intricacies that conventional metrics may overlook.

By addressing manual inefficiencies and gaining deeper visibility into process breakdowns, businesses can streamline operations, accelerate cash flow, and foster sustainable growth.

Complexity Conceals Value and Opportunity

The intricate web of O2C complexity conceals not just challenges but hidden opportunities. 

The order-to-cash (O2C) process is one of the most complex parts of business administration, typically accounting for 1 to 3 percent of a company's revenue. It involves multiple departments like sales, finance, legal, and customer support, which all need to work together smoothly—but this coordination is often a challenge.

Beyond just costing money and causing inefficiencies, when these departments don't communicate well, it can hurt how customers see the company. B2B customers now expect buying things to be as easy as it is for them to buy things online as individuals. They want constant updates on their orders and quick fixes for any problems.

These high expectations mean businesses must work harder to keep up. They need to rethink how they handle orders, especially with new ways of doing business like online sales and subscription services becoming more common.

As businesses deal with the complexities of the O2C process, they need to fix things that waste time and money and make customers unhappy. They also have to meet higher expectations from everyone involved. By making sure different parts of the business work well together and using new technology, businesses can turn their O2C processes into strengths. This helps them grow and make more money in a tough market.

How to optimise the O2C process

Attempting to optimise your Order-to-Cash (O2C) process involves thoughtful consideration and strategic planning. You need a multi-faceted approach.

Optimising your O2C process involves setting clear standards, leveraging efficient accounting software, embracing digital invoicing, and regularly analysing data to make informed improvements. Taking these steps can enhance operational efficiency and ultimately contribute to your business's success:

1. Establish Clear Standards

Do you have a defined set of standards in place? A straightforward guidebook, with simple language can help your team navigate the O2C process smoothly. This simple tool ensures a unified understanding and adherence to established protocols.

2. Evaluate Accounting Software Effectiveness

The choice of accounting software plays a pivotal role in O2C optimization. With a myriad of platforms available, it's essential to assess the effectiveness of your current accounting software.

Look for solutions that not only assist with general ledger management but also streamline receivables processes and enhance inventory management—integral components of the O2C process.

3. Digitise Your Invoices

While some may still be analog holdouts, the benefits of digital invoicing are evident. Transitioning to a digital invoicing system can significantly save time and improve efficiency compared to traditional paper-based methods.

This ensures a smoother and more streamlined O2C process.

4. Regular Data Check-ins

How often do you check in on your O2C process? Utilising software to monitor your O2C cycle can uncover important insights, such as redundant processes, late-paying customers, or recurring issues.

These insights highlight areas where adjustments and improvements are necessary. By addressing these considerations, you not only enhance operational efficiency but also position your business for sustained success.

A three-step approach to O2C optimization

Organisations can achieve substantial improvements in customer experience and drive top-line growth by adopting a three-step approach to optimising the O2C process.

A strategic overhaul of the O2C process can pave the way for sustained growth and competitiveness in the marketplace. The ultimate aim is not only to enhance customer satisfaction but also to prevent the need for future cost-cutting measures.

Step 1: Dig eep Into the Process and Underlying Data

The first crucial step towards unlocking value in the O2C process involves a thorough examination of the process and underlying data. 

Dive deep into the intricacies of the O2C workflow, examining each step for inefficiencies, redundancies, and potential leakages. This initial step is crucial in extracting critical business insights and understanding the drivers that impact the entire spectrum of operations.

This analysis will allow you to unearth recurring errors, instances of revenue loss, and pain points in customer experience that would previously be challenging to pinpoint due to data constraints.

For one industrial manufacturer, the process involved employing advanced process-mining techniques on ERP transaction data to scrutinise the intricacies of O2C processes. This innovative approach unearthed consistent patterns of errors, instances of rework, revenue leakages, and pain points in the customer experience. The use of process-mining tools proved indispensable, providing insights that were previously challenging to attain due to data limitations.

Similarly, a medical distributor undertook a parallel effort, focusing on orders received through electronic data interface (EDI). The analysis uncovered frequent data inaccuracies, leading to extensive manual reviews and validations. These were typically orchestrated through multiple rounds of coordination with both customers and internal teams. A deeper dive into the O2C process highlighted that many issues stemmed from inaccuracies in the database and product information, including pricing and unit quantities.

The power of O2C process mining lies in its ability to reveal untapped sources of value. Armed with these insights, organisations can strategically develop and prioritise initiatives aimed at enhancing process efficiency, effectiveness, and ultimately elevating the customer experience.

The goal is to gain a comprehensive understanding of the existing landscape before venturing into redesign.

Step 2: Deploy internal process and tech fixes

Armed with insights from the investigation phase, the next critical step is to strategically redesign the O2C process.

This involves a thoughtful reassessment of workflows, incorporating efficiency-enhancing measures, and aligning processes with evolving customer expectations.

Here are some practical steps you can take at this point of the O2C optimization process:

• Use digital systems to take orders more accurately from customers. Many companies are now using online portals for ordering, which are better at getting all the details right compared to older ways like phone orders.

• Double-check customer details early on to catch mistakes sooner.

• Make it quicker to check if a customer can pay, which can speed up the process. One company cut in half the time it took to check if a customer could pay.

• Keep a close eye on payments and credits issued to customers. Setting good rules for writing off small amounts and catching mistakes can save a lot of money—sometimes up to half of what would have been lost.

It's all about working smarter and making your business stronger in the long run.

These internal changes wield substantial impact. An industrial manufacturer, for instance, leveraged AI-based tools to identify customers with high rates of payment issues, recapturing 10 to 15 percent of the value of credit memos. 

Similarly, a medical distributor streamlined processes through e-commerce order management, resulting in a seamless ordering experience and reduced errors and customer queries.

By making these changes inside your company, you can fix a lot of the problems in your order-to-cash process, make customers happier, and save money that might have been lost before.

Step 3: Appoint global process owners to drive accountability

As we approach the final phase of optimising the Order-to-Cash (O2C) process, it becomes evident that technology and process enhancements are only part of the equation. The lasting impact of these changes hinges on the design of the operating model and organisational structure, particularly in fostering accountability and cross-functional efficiencies. 

This means that you have to introduce clear structure and accountability across your organisation. When O2C tasks are scattered across different departments without someone responsible for the whole process, things often slow down and become confusing for customers.

To tackle this, some companies appoint a global process owner (GPO) for O2C. This person has the authority to coordinate efforts across departments, making the workflow smoother and reducing the number of steps customers need to go through. By creating a unified approach, led by the GPO, companies can almost double the efficiency gains compared to when improvements are limited to just one part of the business.

This approach is especially valuable when parts of the O2C process are outsourced. For instance, a medical distributor improved its customer service by assigning a GPO to oversee accounts receivable handled by an external provider. This ensured that service standards were aligned with customer needs, boosting satisfaction and operational flexibility.

Transforming O2C from a costly and opaque process to a transparent source of value may require investing more resources upfront. However, the payoff is significant: companies like industrial manufacturers and medical distributors have seen returns of $6 for every $1 invested on average. It all starts with understanding your process thoroughly and realising the potential for savings, better customer interactions, and stronger business operations.

Conclusion

The Order-to-Cash (O2C) process plays a vital role in every business, encompassing everything from receiving an order to getting paid. Mastering your Order-to-Cash (O2C) process isn't just about efficiency—it's about seizing untapped opportunities for growth.

By using modern technology and smart strategies, you can make your operations smoother and your profits stronger. From speeding up payments to finding hidden ways to make more money, optimising your order-to-cash process is key to making your business more successful.

Modern software provides businesses with precise data, allowing for insightful analysis. This data-driven approach reveals inefficiencies across the O2C cycle, such as delays in order fulfilment or issues in the supply chain, which can now be identified and addressed directly.

By optimising your order management, fulfilment, invoicing, and payment systems, you not only boost customer satisfaction but also strengthen your financial position.

By using data and new technology, you can turn problems into opportunities and challenges into successes. Don't wait—start transforming your business today!