People. Process. Systems.

Ziv Dotan
10th May 2018

Order to Cash Efficiency: A Brief Guide for the Perplexed

All service or product providers – regardless of their size – need to be able to operate according to a certain model: They need to be able to determine prices, receive customer orders, book those orders, and, following the provision of their product or service, collect the payments.

This is, in very general terms, what order to cash (OTC) is all about, yet why is it the case that so many companies fall short of operating successfully in this area of their business, while sometimes excelling in other areas? This short introduction will attempt to shed some light on some common errors and best practices in the challenging world of OTC, but first, a slightly more detailed breakdown of a typical example of the process is required:

Listed below are the steps one would expect to see in an example of an OTC process:

  • The customer (or potential customer) receives a quote for a product (or service)
  • An order is received at the company
  • The order is fulfilled
  • The product is shipped (or the service is rendered)
  • Invoice is created
  • Payment is received
  • Cash is applied to account

The ‘smoothness’ of the process outlined above is predicated on quite a few implicit assumptions. For example, we are assuming that the customer is set up before the order is received and that the quote details are agreed by all involved. We are also assuming that all the order details have been fulfilled correctly, shipped and invoiced as agreed, and that no disputes whatsoever would materialise later. However, as we all know, this journey does not always end as expected.

When avoiding the potential for pitfalls and aiming for improvements, we should do so while considering the following three dimensions: People, Processes & Systems.

Let us now look more closely at each of the steps above, while utilising this three-dimensional consideration:

Customer Quote:

Some may argue that this stage is irrelevant as it ‘pre-dates’ the order receipt stage, and therefore does not belong to the Order to Cash process. This argument shifts the focus from essence to semantics. Should you wish to do so, call the process ‘Quote to Cash’…Call it whatever you want- it is nevertheless the case that this stage is about setting up the system necessities as well as the customer’s expectations. You really do not want to get this wrong, so here are a few ways you can make it right from the very beginning:

– Ensure your Sales Teams are up to date about your products & offerings range. They know what they can and cannot offer. They know how their actions will affect those down the line- the customer services team for example- and that they are using the most up to date catalogues & price lists.

– Develop a lean & agile Customer Boarding process. This means you can set up a new customer in your systems upon quote acceptance, and their records contain all relevant details- from shipping terms and locations, to eligible products and prices. Your processes and supporting systems need to be set up in advance, rather than on ad hoc basis.

Order Receipt:

How will you be receiving orders? You have a customer eager to order your products, and you want to get the orders quickly and accurately into your books.

– Aim to remove manual processing. Ideally, you should aim for an automated ‘remote order entry & validation’ solution; one which is linked to the customer procurement system, and which will take away the need for manual processing of all order details into your own system, with all possible mundane human errors.

– Your system should be able to receive orders for more than one type of product (‘cross-brand orders’). Otherwise, rather than automating the receipt of Purchase Orders into a single system, you will need to replicate the solution and introduce some clever (and expensive) logic to split them.

Order Fulfilled & Shipped:

These two stages are interconnected. You want to be able to give the customer all they had asked for, at the price that they agreed to pay, on the date they expected it. In short, you want to- at the least- meet their expectations, and to communicate any changes proactively. Think of how to avoid those ‘what’s happening with my order’ type of calls:

– Consider granting your Sales Team system access to view the orders’ status and product inventory. They are the ones with the closest contact to the customer, and they would often contact your Customer Services team for updates on behalf of the customer, so why not just make the communications string leaner, and allow them to interrogate the system directly? It will also cut down the number of inquiries your Customer Services team will have to deal with.

– Your aim is to give your customer a commitment, and then keep that commitment. Therefore, ensure you have a robust supply & demand process in place, and that the process is supported by a system that provides on-time information.

– If you implement a remote ordering link to your system, consider making it a two-way communication – allowing order updates to be sent back to the customer as they happen- to keep the customer informed.


You have shipped the goods, or provided the service. Now it is time to issue the invoice, but how can you tell if you have a proper control of the process? Are you relying on manual tracking of shipments & associated invoices?

– Consider developing a proper control point in your system, which will reconcile shipments & invoices, and highlight those costly cases, where you shipped the products but did not follow up with billing, or those cases where the billing was created incorrectly.

– If within your system capabilities, assess if you can implement certain parameters that would ensure the invoice is created automatically, that is, without manual input, and on time. Consider taking it a step further, and develop an electronic invoicing capability- to either send the invoice directly to the customers, or to allow them to view their invoices on line.

Payment Receipt:

In an ideal world, you would receive the payment according to the agreed terms, and prices. But how do you react to disputes or complaints? The following may be a good list of options to consider:

– Try to minimise the use of complex or multiple payment terms offering. The simpler the better.

– Try to capture the root cause for issue, using the three dimensions stated earlier: People, Processes & Systems. Gradually, build a picture of where the problems lie- is it due to wrong system set up? Does a certain team require additional training? Had the communication been inadequate? Does a certain process require amendment?

– Put together a robust management system around your claims process: Measure TAT, average values etc, in addition to the root cause determination. The more you learn from your failures, the less failures you will have.

Cash Application:

This, in theory, should be the easy part. You received a payment and you apply it to the right account. What could possibly not work properly? Well, a few things actually…

– Do you have a proper process to reconcile payments with the relevant invoice? And if you do, is it a manual and lengthy process, or part of the A/R features of your system?

– How do you handle a remittance which does not clearly indicate what the payment is for?

– Do you have customers with multiple A/R account numbers? If you do, how do you know you are applying the payment to the correct account? Are you checking it manually, or is this check part of your system set up?

Throughout this brief guide, I have emphasised the importance of three elements, when considering the order to cash process; namely, people, process and systems. Any best practice that is implemented must not be developed in isolation. Even the seemingly most robust process relies on well trained people and efficient systems. This triad is relevant not just in the context of order to cash, but in the end to end operations of any business- large or small- and at any sector of the industry. Considering all the recommendations I have listed (and there are plenty more of them), would help in establishing a much better OTC process; one which increase cash flow, reduce operation cost and waste, and increase the overall business efficiency.

For more information on Order to Cash efficiency contact us.

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