The importance of an efficient Order-to-cash process.
It seems very simple… The customer starts the process by buying something from us, we create a sales order and deliver the product/service. After delivery, we send the invoice and receive payment from the customer. But this O2C or Order-to-Cash process is in reality more
complicated.
As companies grow, this process can become too complex to handle large numbers of orders and invoices. That is why companies should try to improve each step in the process so that they can function as an integrated system. A cohesive ERP-system like SAP S/4HANA that leverages technology and automation is most likely to result in a higher accuracy and efficiency. The Purchase-to-Pay process is the equivalent of the Order-to-Cash process, but from the perspective of the procurement side.
A cohesive ERP-system like SAP S/4HANA that leverages technology and automation is most likely to result in a higher accuracy and efficiency.
What is the order-to-cash process?
It begins with establishing and maintaining relationships with customers. The process in the sales and distribution module ends with invoices for the delivery of goods or services to the customer. Booking incoming payments from the customer is part of the finance module. Let’s take a look at the process steps in more detail.
The customer management cycle begins with pre-sales activities. For example, you create and send a quote, in response to a customer request.
As part of the order-to-cash process, you create a sales order with reference to a quote.
During the availability check, the system confirms the delivery of the goods for the desired delivery date based on the availability of the material. The sales order will in effect make a reservation of the material so that it will not be available at the next ATP check. ATP is Available to Promise. ATP check is performed to check the availability of a stock or a receipt element either at a particular location or at globally.
The outbound delivery supports all shipping activities, including picking, packing, transportation, and goods issue.
Picking includes picking goods from the storage location and preparing the correct quantity in the collection area where they will be prepared for shipment.
Once the goods leave the company, the shipping activities are complete. This is illustrated by the issue of goods or outgoing deliveries.
In the billing process, you create the customer invoice and transfer all the necessary data to FI. Billing creates the open item for the customer and books the revenue.
The final step in the order-to-cash business process is to receive payment from the customers.
Order-to-cash or quote-to-cash?
The difference between these two processes is that the O2C process does not involve negotiations and sending a quote to the customer. These are the initial steps in the quote-to-cash process.
Both processes also have some similarities. They are both an integration between Finance (FI) and Sales (SD). The configuration includes both Finance and Sales & Distribution modules. Furthermore, they also use the same tools as ERP/CRM. However, the quote-to-cash business process consists of more steps that begins with quotations/negotiations and concludes with customer payment.
What are the benefits of such an automated order to cash process?
Leading companies are moving quickly to automate the process because they see benefits, including:
A reduction in the number of DSO, which is critical to improving a company's cash flow. The DSO stands for Days Sales Outstanding and shows the average number of days between the invoice date and the payment date.
A reduction in order-to-fulfillment cycle time. This means that the time it takes from customer order to the receipt of the product or service by the customer is lower than before. It provides an insight into the internal efficiency and supply chain effectiveness.
Better visibility of exceptions, for quicker intervention and resolution, resulting in less impactful interruptions to the process.
There are also other important, but less quantifiable benefits, including:
Faster conversion of receivables,
Accelerated collections,
Improved accuracy of billing, collections and cash flow reports,
Fewer exceptions,
Improved ability to resolve customer disputes thanks to better visibility throughout the O2C process.
How can you jump into your S/4HANA transformation?
The corona pandemic initiated a shift for a lot of companies around the world. In order to keep up with the fast-moving world, your business had to change, which made many processes run less efficient as they used to be.
CANGURU can help with your digital transformation and aligning your processes with the underlying systems. Whether you already have certain systems running or not at all, we can help you find the right combination of applications and seamlessly integrate them to support your business.