Order to Cash, also known as O2C or OTC, refers to the set of

business processes for receiving and processing customer sales

orders for goods and services and their payment. These processes
are at the heart of all businesses and unless they are managed
efficiently and accurately, organizations would not only face financial
problems, but also reputational issues. Every department in a given
company is affected either directly or indirectly by the Order to Cash
system.

Steps of the Order to Cash Cycle

1. The cycle begins with the system receiving orders from the
customer. This could be via email, Internet, sales person, fax
or by some form of Electronic Data Interchange. In some
businesses, the order could be a simple purchase request for
a particular product, while in other service oriented or
wholesale businesses, the customer and the company would
enter into a long-term or short-term contract.
2. The company might even conduct a credit review of the
customer before accepting the order, especially if they have
plans of offering the customer deferred payment options.
3. The order is documented and the company begins the task
of fulfilling the order.
4. Once the product has been shipped and delivered, or the
service has been fulfilled, the most important stage of the
cycle begins with regard to cash management. The invoice is
created and sent to the customer for payment.
5. After the customer has made the payment, the accountants
note the entry in the general ledger.
 Order to cash
(OTC or O2C) is a set of business processes
In an ideal world, this would be the simple chain that ensures that
the customer gets his product and the company gets their payment.
However, there are always glitches in every system, and unless
companies deal with them quickly, they could hamper the smooth
flow of business and profitability.

Impact and Challenges of Order to Cash

Management
 If the sales orders are not noted accurately, then the first
stage of the cycle itself would be in peril, and this is not an
unusual event when the orders are taken manually. When the
wrong product is made or the wrong specifications are used,
the reputation of the sales department is at risk and the
subsequent purchase returns cause losses for the production
unit.

 Creating manual invoices takes time, as does sending the bill

by courier or post. This delays the payment process and
increases the possibilities of errors. This also creates
additional work for the accounting department.

 The logistics department is heavily involved in the process as

their ability to transport the goods efficiently, safely and on
 time plays a major role in the time taken for the cycle to be
completed. Last minute requests, unforeseen transportation
changes or damages to cargo can throw the entire cycle out
of gear.

 When customers are dissatisfied with the product or service,

they could refuse to make payment, or at other times they
would just default on their payments. This increases the
workload on the collections department and the customer
service teams.

 The importance of the company realizing the payment in cash

is fully understood when they sell their goods on credit. The
company does not have liquid cash to spend even though they
would have recorded the sale of goods as a revenue item in
their books. The lack of cash inflow affects their working
capital, and in large enough amounts the overall finances of
the company. Thus, the credit policies of the company have
a considerable impact on the Order to Cash cycle.

A significant portion of the operating costs is therefore spent in

managing the Order to Cash cycle. The greater the inefficiencies in
the cycle, the greater are the risk of potential losses. That is why
many companies are now venturing towards outsourcing for industry
best practices in Order to Cash management. A specialist provider of
Order to Cash Outsourcing Services will be able to manage sales
order management, Finance and Accounting, invoice data entry and
management, and customer service for collections, to enable
businesses to streamline this cycle and optimize the process.