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Order to Cash (OTC/O2C) is a set of various business processes used for receiving/processing client sales orders for products/services. It also includes the payment. The processes are important for any company and it’s important to manage them efficiently/accurately to avoid financial reporting/reputation issues. Those are both things that companies will want to avoid since they can cause a lot of problems. Each company in a business is affected direct/indirectly by the OTC system.
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The system receives orders from clients. This can be through various methods like the Internet, email, fax, or in-person. In some cases, the order could be a basic purchase request for a product. However, in other service/wholesale companies, the client and company might enter a short or long-term contract.
The company might do a credit review of a client before accepting their order. This is especially true if they’re considering offering preferred payment options to the customer. In that case, it’s especially important to make sure the customer has good credit. This will make it more likely they’ll pay consistently and on time. It’s important to note it’s not 100% but there’s a greater chance that will happen if the person has good credit.
Orders are documented and the company starts the task of filling the order. This is one of the most important steps in the process and it’s also a critical one so it’s noteworthy.
After the product is shipped/delivered or the service provided a key stage in the cycle starts in terms of cash management. In this step, the invoice is made and sent to the client for payment. It’s a critical step because it gets the ball rolling in terms of payments made to the company. That’s why it’s critical to get this step right so you can start the payment process.
After the customer makes the payment the company’s accountants input the entry in the general ledger of the company. This is another important step because it involves a written record of the payment that the company records in its official records. There are several important steps in the process but this is one of the most critical ones because it’s about the company recording the payment in its records.
In a perfect world, the entire payment chain would make sure the buyer receives the product and the seller gets the payment. It’s unfortunate but every system has some type of glitches. So, unless a company handles them as quickly as possible they can have a negative effect on the process of business/profitability. Those are critical for every company and it’s important for them to be as smooth as possible.
It’s 100% understood when companies sell products on credit that the company prefers to receive cash payments. That’s because the company doesn’t have the liquid cash for spending even though the business would have recorded the sale of goods in their books as a revenue item.
When a company experiences a cash flow management it has a negative effect on the company’s working capital. In the case, enough money is involved the company’s overall finances are affected. As a result, the company’s’ credit policies have a big impact on the OTC cycle. When it happens
There’s also more time required for sending the bill by mail/courier. This results in delays in the payment process and also boosts the chance of errors. These are all situations your company will want to avoid. It can also result in more work the accounting department must complete.
If a company’s sales orders are note inaccurately then cycle’s first stage would be in danger. This isn’t unusual when orders are submitted yearly. When a company makes the wrong product or uses the wrong specs the sales department’s reputation is at risk and future purchase returns can result in losses for the company’s production unit.
When customers aren’t happy with a product/service they might refuse to make a payment. In other situations, they’ll simply default on their payments. These are both situations your company will want to avoid. That’s because it creates more work for your company’s collections dept. and customer service teams. This is a situation you’ll want to avoid since it can cause a lot of logistical problems for your company.
This department is greatly involved in the process since its ability to transport the products safely, efficiently, and on time has a big effect on the time required for the completion of the cycle. Transportation changes, last-minute requests, or damage to cargo can cause the entire cycle to be affected. This is definitely a situation you’ll want to avoid since it’s important for the cycle to go as smoothly as possible in order to get the best results.
A big percentage of the operating costs of a company are spent to manage OTC cycle. The more inefficient the cycle is the higher the risk of possible losses. As result companies now work to outsource as part of its OTC management in order to get the best practices. A specialist company that provides OTC outsourcing services can manage various tasks. That includes finance\ accounting, sales order management, customer service for collections, and invoice data entry/management. This allows companies to streamline the cycle and make the process more optimized.
It’s highly recommended your company uses OTC automation. The reason is it’s much more efficient. You won’t have to deal with paper and all the problems related to that approach. Besides the paper itself, there’s also the manual processing that can require tons of resources. For example, consider the number of touch points required in paper processes.
An OTC that’s automated is much more practical. You can process sales orders, quote requests, invoices, and field tickets using one software solution. This provides your company with several benefits. It will also be easier for clients to interact with your company. The result is can have a positive effect on your company’s sales and profits.
Read our article:How to Select a Finance and Accounting Outsourcing Services Partner
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