order to cash (OTC or O2C)
What is order to cash?
Order to cash (OTC or O2C) is a set of business processes that involve receiving and fulfilling customer requests for goods or services. It is a top-level, or context-level, term used by management to describe the finance-related component of customer sales.
Other context-level business processes include marketing to lead, procure to pay, hire to retire, concept to launch and sustain and retain.
The O2C cycle is important for businesses to optimize in order to maintain smooth operations. Activities within O2C can impact supply chain management, inventory management and required labor. Therefore, if a bottleneck occurs in one of the steps of O2C, operations can be negatively impacted or disrupted.
Additionally, a company's cash inflow and working capital is determined by O2C functions. A delay in invoicing or payment collection can halt any business processes that require spending profit, such as payroll.
Major vendors of ERP systems offer O2C services such as Oracle, SAP and Workday. These systems can supplement the O2C cycle with related technologies like order management, credit management and reporting and data management.
O2C cycle steps
The O2C cycle starts when a customer makes a purchase and runs through the company's entire order processing system. The cycle consists of multiple sub-processes around the following steps:
- A customer order is documented.
- The order is fulfilled or the service is scheduled.
- The order is shipped to the customer or the service is performed.
- An invoice is created and sent to the customer by accounts receivable.
- The customer sends payment that is collected by the company.
- The payment is recorded in the general ledger.
Once the cycle is complete, organizations should collect data around the O2C activity to pinpoint weaknesses or inefficiencies and identify opportunities for improvement.
Difference between order to cash and quote to cash
Quote to cash (Q2C) refers to all business processes involved in selling a product. Therefore, O2C is just one component of the Q2C cycle. Q2C also includes customer purchase intent, configuration pricing quoting and contract lifecycle management.
The needs of customers are more integrated into the Q2C lifecycle as prices are determined, products and services are bundled, and negotiations are made. O2C simply handles the customer transactions.