Explainer

Order to cash (O2C) explained: the process, the measures and how to speed it up

Order to cash runs from a customer order to the cash in the bank. Here are the steps, the measures that matter, where cash gets stuck and how systems and automation help.

By Christopher Fagan, Managing Partner, PEF Consulting Partners

What is order to cash?

Order to cash, or O2C, is the end to end process of fulfilling customer orders and collecting payment: order capture, credit checks, fulfilment, invoicing, collections, cash application and reporting. It touches sales, operations, finance and customer service, which is why it is often nobody’s single responsibility.

The order to cash cycle

  1. The order is captured from a quote or a customer request
  2. Credit is checked and the order approved
  3. The order is fulfilled: picked, packed and shipped, or the service delivered
  4. The invoice is raised accurately and promptly
  5. Collections and reminders run on agreed terms
  6. Payment is received and the cash applied to the right invoices
  7. Disputes and credit notes are resolved
  8. Debtor days and cash are reported

Where cash gets stuck

Measures that matter

Measure What it tells you
Days sales outstanding (DSO) How long it takes to collect
Invoice accuracy How many invoices are right first time
Dispute rate and resolution time The quality of everything upstream
Unapplied cash How well cash application works
Bad debt How effective credit control is
Order to invoice time The speed of fulfilment and billing

Order to cash in utilities

In energy and water the order to cash cycle is usually called meter to cash: meter reads, settlement, billing, payments and collections. Billing exceptions and unbilled accounts are the utility version of stuck cash, and our billing exception cost calculator puts a figure on it.

Automation

Integration between CRM and ERP, electronic invoicing, automated reminders and cash application tools can cut DSO and effort substantially, provided the order data is right at the start. Most order to cash problems are created at order entry and only found at collection.

Related reading: procure to pay explained, finance transformation, billing integrity and revenue assurance, ERP vs CRM.

Common questions

What is order to cash?

The end to end process from receiving a customer order to collecting and applying the payment, including credit, fulfilment, invoicing and collections.

What is the order to cash cycle?

Order capture, credit check, fulfilment, invoicing, collections, cash application, dispute resolution and reporting, repeated for every order.

What is the difference between order to cash and quote to cash?

Quote to cash starts earlier, with configuring and pricing the quote, and is often used where sales and contracts are complex. Order to cash starts when the order is placed.

How do you reduce DSO?

Get orders and invoices right first time, invoice promptly, resolve disputes fast with clear owners, automate reminders and cash application, and enforce credit limits.

If debtor days keep creeping up, look upstream at order entry and invoicing before adding more collectors. We can help you find where the cash is getting stuck.

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