“Order to Cash” refers to the set of business processes that starts from the point when a customer places an order, to the state when the customer pays for the goods received. A typical Order to Cash (commonly termed OTC) cycle looks like the following:
Place an Order: This is the phase when the customer places an order with the supplier or vendor. An example of this could be:
1) A retailer placing an order for 10 cartons of washing powder, each containing 20 packets of 500 grams each
There are multiple ways in which such orders are placed. The vendor and the customer can have access to a common internet portal. There are channels like EDI (Electronic Data Interchange), which provide a standard way to transmit data between organizations.
Reconcile an order: Once an order is placed, the duty of the vendor is to validate the order for completeness. There is also a need to check the credit worthiness of the customer, who places the order. The checks could be such as
1) Whether the customer has paid all the past dues or not,
2) Whether the dollar amount involved in the transaction is abnormal or not etc.
Fulfill an order: This is the process that takes care of fulfilling the order placed by the customer. Fulfilling is about planning and executing an efficient order delivery process. The end result of this process is to transmit the goods to consumers based on the order request, but there is lot of planning involved in terms of sequencing the order transmission and consolidating the orders placed by multiple customers. For example,
1) There could be restrictions around sending a specific product. A customer might have placed an order for 50 cartons of a specific product. But the vendor might be able to send only 25 cartons at any given time.
2) There could be orders for a specific product from multiple customers but in small quantities. This gives a scope to consolidate the orders and send as one master shipment till some location and then dividing the goods for last mile delivery
Invoicing: This is the process which handles the generation and delivery of invoices to the customers. These invoices are generally electronically generated and sent through channels like EDI (just as how orders are placed). Otherwise they could be transmitted even by means of internet portals accessible by vendors and customers. These invoices are generally used by the customers to match against the orders they placed and the goods that they received
Payments processing: Once the goods are received, the customers will execute a reconciliation process to match the orders they placed against the goods received and the invoices. If the reconciliation proves good, the customer will release the payment to the vendors. This financial transaction is recorded in the accounting systems (such as General Ledger) of both vendor and the customer. There will be credit policies agreed upon between both these parties which govern the payments. For example, there could be an agreement that states payment will be made within 30 days after the goods are received by the customer. When such terms and conditions regarding the payment are violated, then the “Collections” department may come into the picture to facilitate the collection of payments from customers.
Hope this gives a simplistic overview of the Order-To-Cash cycle. These processes are handled in a sophisticated manner by various Enterprise Resource Planning (ERP) packages such as SAP. These ERP packages have been successful over the years in articulating the needs to customers from various industries and satisfying their requirements by and large.
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