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Conquering Common Challenges in the Order-to-Cash Process

In a time of new payment types, new ecosystem selling models, and new…everything, the order-to-cash process (O2C process) has become tremendously complicated. And that means order-to-cash business processes need to grow up or be handed off to payment services outsourcers. 

This article will cover the basics and how to evolve for new challenges: 

  • What the order-to-cash process is
  • Order-to-cash flow chart
  • Key risks in the order-to-cash-cycle
  • How to improve your O2C process

What is the Order-to-Cash Process? 

The O2C process includes all the steps involved in processing orders, from order placement to fulfillment, invoicing, and payment receipt processing. 

A robust order-to-cash process for hybrid phygital (physical/digital) models should also build in data analysis to improve the process as well as regulatory steps like KYC to verify customer identity and avoid having your business used for unlawful purposes such as for money laundering.

The optimal order-to-cash process flow 

Getting your order-to-cash process flow chart right takes time — and is different for every business — but here are the main components:  

1. Customer onboarding. Customer onboarding involves identity verification, risk evaluation, and operational setup for customers. To protect your business from fraud (KYC/KYB compliance), you may need to verify customer identity and confirm that they’re authorized to operate on your platform. You will also gather acceptance of terms and conditions before they proceed.
While onboarding is typically simple for high-volume B2C customers, B2B customers may require more support. B2B sellers often entail more complex data entry and document checks, as well as operational setup. Before a business user can register and trade in your platform or marketplace, for instance, they may require functional and technical support to create and set up a store as well as configure an attractive and functional product catalog.  

2. Credit management. For customers who aren’t paying upfront, you need to carefully manage credit risk. While prepayment is widespread in B2C, B2B payments often involve asynchronous orders, meaning payment after the product delivery (typically payment on due date). This time lag creates a credit risk, so it’s crucial that you carefully evaluate how much credit to extend to customers on 30- and 60-day terms. 

3. Order management. This step involves entering and accurately managing orders such as data accuracy checks and fraud, as well as policy management steps. You also catch other mistakes in this step, like calling to verify that a customer meant to hit ‘buy’ three times on the same order (and canceling surplus orders made by mistake). You may also want to build in rules, for instance, not fulfilling an order made by a customer with a past-due invoice.  

4. Invoice management. For customers who pay via invoice after the fact, this step involves generating and sending invoices and billing data checking. Managing data is essential for creating accurate invoices — and smoothly managing customer relations. Adding a layer of complexity, many countries in Europe are implementing mandatory e-invoicing for B2B, with certain fields required. 

5. Collection services. Because customers do not always pay invoices, neither on time, nor fully, providing collection services involves dunning (sending reminders and requests for payment), negotiating with customers about payment reductions or plans, managing billing disputes, and legal and pre-litigation actions. 

6. Payment management. Payments can be especially complex if you’re navigating international markets, which can bring in legal requirements, taxes, and currency conversions. In essence, commercial success introduces more diversity into your transactions.

When creating your end-to-end order-to-cash-process, remember to factor in processes and governance for:

  • Countries you’re working in 
  • KYC and KYB compliance 
  • Data security across the whole O2C flow
  • Internal controls over your order-to-cash process
  • Appropriate payment methods (such as transfer or direct debit) and payment terms, e.g., pre-payment, payment on due date, recurring payment
  • Centralized billing: Offer a white-label invoicing solution to provide consistent invoices to your customers and accurate billing information to avoid payment deadlines
  • An optimal dunning process
  • Geographical roll-out steps to ensure you adapt offers to local legal framework and habits
  • Extending your risk management policy to each new channel you enter, e.g., physical, e-commerce, or marketplace

Every end-to-end order-to-cash process looks a little different but most include the above.

Order-to-cash process map

An order-to-cash process map starts with customer onboarding and goes through payment management. And internal controls over your order-to-cash process should be built into each step.

Key Risks in the Order-to-Cash Cycle

The order-to-cash cycle is a complex process—but tightening it will reduce risk, improve cash flow, and sharpen your financial forecasting. The key risks in the order-to-cash process include financial and legal missteps.

The O2C process risks are:

  • KYC and KYB mistakes. Some people can use your business to launder or otherwise improperly spend money if you don’t do your due diligence in verifying customer identity, which can lead to commercial losses, legal penalties, and reputational risks — other customers or sellers wouldn’t want to be associated with illegal activities or organizations. Mistakes also make risk assessments more complex, interfering with credit scoring. Managing KYB and KYC is complex because different countries or regions (like the EU) often have different standards to account for.
  • Liquidity problems. Collection and reconciliation is a messy affair with various risks: failing to send invoices on time, getting inaccurate data, misattributing funds, failing to track unpaid invoices, and so on. You need a highly organized process to avoid mistakes and collect money on time.
  • Inadequate credit management. Inadequately assessing creditworthiness or client risk can cause cash flow issues or shortages. For instance, if your credit management policies allow granting payment facilities to non-solvent customers, you might hold excessive outstanding invoices and, ultimately, bad debt. And that will impact your liquidity.
  • Poor data management. O2C is a data-intensive process, and there are many ways to go wrong. Automated data validating checks can help prevent costly errors, especially if all the systems that touch order-to-cash are integrated. And because customers are trusting you with sensitive data that could be used fraudulently, you need to protect every link in the chain. There’s no one-size-fits-all solution to quality O2C; each challenge requires a mix of technology, processes, and people to solve it.
  • Over-reliance on manual or automated solutions. If you’re using an army of cold callers for dunning or have a huge invoicing department, you’re probably spending more than you need to and slowing down cash flow. You should automate as much of the process as possible to avoid errors and create speed, but just relying on technology is a big mistake. You’ll catch 80% of the payments this way, but leave a lot of money on the table with more complex issues that need humans to resolve. 

How to Improve Your O2C Process

The best way to improve your order-to-cash process — and reduce the average cost of getting paid — is to integrate all the systems that touch payments, automate everything possible, and streamline processes around this new structure. 

For instance, new payment methods can speed up the order-to-cash business process when you’re equipped to take advantage of them. 

But automation is easier said than done. Siloed and legacy technology often makes it difficult, especially for established companies. Digital transformation has to happen first but it can take years, cost a fortune and disrupt business.

You can’t put it off forever or your O2C cycle will suffer. Companies relying on manual processes will find themselves slower and less nimble than competitors. Customers like the convenience and digital transformation makes everything faster and easier to manage. 

Consider outsourcing your O2C cycle management to an end-to-end payment services provider if: 

  • You’re developing a new market channel, e.g., retail, e-commerce, or a marketplace
  • You’re entering a new market with new payment uses, such as the European Union or the United States
  • You have many smaller clients or customers and find it takes too much time and resources to address them
  • Your O2C management is fragmented across departments and external partners

Outsourcers have the technology and expertise to put together the right solution for different use cases. They also have access to lower-cost, highly competent talent pools for the pieces that require human intervention, like negotiating new payment terms with customers in arrears.

Thinking about your next steps? We’d be happy to chat with you.

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