Hidden Opportunities in the Order-to-Cash Process

July 11, 2021
The order-to-cash process is thought of as an accounting process, but it involves most elements of a manufacturing organization. Discover how to improve your business outcomes by evaluating each step in its procedure.

Talk about the ordinary, the routine, the tedious...the order-to-cash cycle is the epitome of all those attributes. It is a ubiquitous process, with an established body of knowledge, solid procedures, and frequent audits. So, where’s the opportunity? Well, it is the culmination of all successful customer interactions. A creative look may yield opportunities to improve business. The order-to-cash process is thought of as an accounting process, but it involves most elements of a manufacturing organization. Communication across the organization can yield the most significant improvements. Let’s examine the key steps.

Order management generates valuable information. Sales should be concerned with the selling effort required, customer and market intelligence gained, potential leads, method of customer acquisition, future opportunities with the customer, price, terms, concessions required, etc. Sales, order taking, logistics, and operations should be concerned with influencing customer ordering patterns. Ordering behavior drives inefficiencies and complexity or can simplify many activities; communications and price incentives can often influence customer behavior if information is known across the organization. Orders can range from complex custom orders requiring many approvals for modifications, delivery dates, pricing, etc. to routine orders for standard products at standard prices. One critical, but often overlooked, performance statistic for non-standard orders is the time from order receipt to the final acceptance decision. This is critical to your reputation with customers; metrics and standard processes are key to improving or maintaining performance. Credit approval, both for new customers and monitoring the credit worthiness of existing customers, is a strong risk mitigating function. However, it must be done efficiently and consistently with clear policies, rapid notifications to sales and senior management for problems and delays with significant customers, strong cooperation between finance and sales to maintain customer relationships, and clear procedures for rapid action by operations and shipping for serious credit failures with existing customers. A final boring, but important, customer satisfaction issue is accuracy of order entry­—terms, pricing, and delivery—which can affect invoicing, customer satisfaction, and the speed and accuracy of payment.

Order fulfillment and shipping is primarily an operations and logistics function, but it critically interests customers. Offering visibility into or communication about this process can enhance customer satisfaction. Sending notices of order fulfillment and shipping to sales staff and order takers enables clear, proactive, and positive communications with customers. 

Invoicing should occur with order shipment unless special arrangements are in place. Accurate invoicing depends on accurate order entry, both initial entries and modifications. For larger customers, send invoices to sales staff so they can communicate with customers. 

Accounts receivable management, often thought of as purely an accounting activity, is a key enterprise activity and provides critical customer information. Sales and order taking should always have receivables status available and make proactive communications with customers on payment performance. For serious situations, communication channels to manufacturing and fulfillment should enable holding orders for customers that are at high risk of non-payment. To the extent business permits, prompt paying customers should receive recognition and incentives; and slow-paying customers should see disincentives if their behavior continues. Commissions to sales staff can be paid when collection is complete to ensure their continuing interest.

Payment collection & dispute resolution. Reconcile payments received with outstanding invoices and resolve differences. Differences can range from mundane issues resolvable between accounting offices, or may become a customer satisfaction and relationship issue that requires the involvement of sales staff, senior management, and potentially legal. Escalating, addressing, and resolving these issues promptly is good business practice. Confirm payments received a few days after deposit to ensure the customer or credit card company has not stopped them or dishonored a check because of non-sufficient funds. If a customer pulls a payment back, notify production and shipping immediately to hold pending orders while resolving the matter. Also, rapidly notify sales and senior management to manage the customer relationship for the best possible outcome.