Billing & Monetization

Automate Your Order-to-Cash Process to Increase Customer Retention

June 27, 2023

Regardless of your business model, the key to growth and profitability is customer retention. When looking at the customer lifecycle, order-to-cash (O2C) plays a critical role in developing and maintaining long-term customer relationships. However, many companies focus on the acquisition component of the customer lifecycle – leaving the order to cash process to chance. Although this business strategy may yield positive results for a while, as your company grows O2C functions become more inefficient and error-prone – risking your customer relationships.

Are you beginning to encounter delays in fulfilling customer orders or an increase in order errors? Do you need to increase staff just to meet customer order expectations? Are you encountering delays in sending invoices, or sending invoices that have errors? If so, O2C automation can enhance your customer’s satisfaction while increasing revenue and cash flow. In fact, leveraging automation to streamline the entire quote-to-cash (Q2C) cycle can deliver a 10 – 15% increase in total revenues.

Order-to-Cash: What it is and why it’s Important

Considered a subset of Q2C, O2C encompasses the processes order fulfillment. The process starts once the sale is complete. It includes shipping the product or activating the software. This creating and sending invoices, collecting payments, analyzing data, and ongoing order to cash process optimization.

Complex by nature, O2C touches numerous business activities like sales, finance, legal, and customer support – to name a few. In most organizations, these are siloed functions leading to higher costs, inefficiencies, margin leakage, and customer dissatisfaction.

Internally, O2C links to your cash flow, internal resources, supply chain management, inventory management, and analytics. From an external perspective, business customers now expect the same seamless purchasing and delivery experiences received in the B2C world. One that is frictionless, offers easy-to-use self-service options, provides relevant notifications, and delivers real-time order status updates.

Given its cross-organizational impact, a single O2C misstep can result in negative cash flow, increased customer churn, growth decline, and poor brand reputation.

What is the Order to Cash Process?

Let’s explore the nine processes associated with O2C.

1) Order Management

Considered a business process, order management interacts with your customer relationship management (CRM), enterprise resource planning (ERP), and supply chain management (SCM) systems. It moves the purchased products and services through order entry, processing, and tracking. Automating this phase notifies relevant departments of the new order and then kicks off related processes.

2) Credit Management

A credit approval process should automatically begin for new customer orders or current customers with previous credit issues. Finance personnel should be notified automatically if they need to review further. When a returning (credit approved) customer places an order, the workflow should automatically send the order to the fulfillment stage.

3) Order Fulfillment

This step includes prepping the order for shipment or scheduling the day/time a service will be activated. SCM and inventory management play a critical role in fulfilling orders quickly and efficiently. While distinct but interconnected concepts, SCM handles moving goods at a macro level and includes aspects such as transportation, finance, warehousing, IT, human resources, etc.. Inventory management helps fulfill orders and track inventory.

If an order can’t be fulfilled, an automatic alert should be sent to the customer giving them the option to cancel the order or wait until the product becomes available. To avoid invoicing issues, notifications detailing the inability to fulfill the order should be sent to the billing department.

4) Shipping

When products are involved, successful shipping is largely dependent on logistics. This step in the cycle requires regular audits, and the immediate updating of data from the order and fulfillment management functions to accurately coordinate pickup and delivery.

5) Invoicing

A critical step in the O2C cycle, this phase is when the accounts receivable (AR) process begins. Invoices must include all the necessary information like:

  • Order date
  • Shipping date
  • Shipping and billing addresses
  • A description of products and services provided
  • Item costs
  • Payment details
  • Credit terms
  • Fees
  • Taxes

To improve accuracy and ensure timely delivery of invoices, automation is critical. Also, be sure to offer invoices in a variety of ways, including email or postal service.

6) Accounts Receivable

In addition to generating and delivering invoices, the AR team reconciles and tracks payments, as well as investigate invoicing issues, resolve errors, and reissue inaccurate invoices. Assuming payments are made on time, the payment should be allocated automatically. When predefined outstanding debt thresholds are reached, customer messages should automatically be sent, enabling you to easily manage late fees and account suspensions.

7) Collections

Managing unpaid debt is time-consuming, and if handled incorrectly it can result in customer satisfaction issues. To streamline the process and ensure collection initiatives are accurate, this phase requires automation. Efficient collections management requires that collectors have all the information needed, preferably on a single screen.

This provides them with the ability to easily access customer history, view outstanding debt, and track, review, and action collection strategies. If you outsource collections, the software should be able to share data with the agency handling the collections.

8) Revenue Recognition

To speed the close process, revenue recognition automation software is a must. Since revenue cannot be recognized until earned, the accuracy of this step is critical. With the right revenue recognition software, you’ll streamline revenue management for any pricing model, billing approach, or promotional offer – while staying compliant with ASC 606 and IFRS 15.

9) Analyze

This phase in the cycle collects and manages data from all touch points, including sales, orders, payments, customers, etc. This ongoing process enables you to monitor and analyze the data collected across every stage of the O2C cycle. Using the metrics you receive, you’re able to adjust and improve the order to cash process and eliminate inefficiencies.

Given O2C’s multi-functional reach and intricacies, this complex process poses inherent inefficiencies, significant challenges, and interactions that can have a negative effect on customer satisfaction.

Overcome Order-to-Cash Inefficiencies and Challenges

If you’re like many of your counterparts, your O2C processes have become fragmented and inefficient. This can result in many things like:

Ineffective use of internal resources

From creating sales orders and developing and sending invoices to revenue recognition, handling these tasks manually is time-consuming. Plus, it often results in order-to-cash delays and errors. To maximize O2C efficiency and reduce business process errors, workflow automation is a must. That way you can improve efficiency and reduce errors, and accomplish more with fewer resources, while maintaining high quality.

Order management delays

Everything that happens within the order management process – from order capture to product shipment/service activation impacts the order-to-cash cycle. When handled manually, internal disconnects and process delays extend the time between accepting an order and recognizing revenue. For instance, lengthy contract and sales order approval processes lead to dissatisfied customers, leading to lost deals and missed upsell/cross-sell opportunities.

Limited payment options

Collecting payment for products provided or services rendered is what keeps your company in the black. When businesses offer only traditional payment methods, the payment process can become very slow. It may also result in prospects purchasing from competitors who accept a variety of payment methods.

Offering a variety of electronic and manual payment options is critical to the financial health of your business. Be sure payment choices support any payment need by offering debit/credit cards, checks, PayPal, direct debit, and lockbox. Payments should be accepted via hosted payment pages, a customer portal, or through agent assisted transactions.

Additionally, a payment gateway enhances your ability to accept payment methods of the customer’s choice, as well as simplify the payment process and get paid faster.

Ad hoc collections and revenue recognition

In a perfect world, people make payments on time or prior to the invoice due date. Since that’s not always the case, an automated system – one that combines billing, dunning, collections, and payment processing in a single solution – helps to reduce days sales outstanding (DSO), improve cash flow, plug revenue leakage, and deliver positive customer relationships.

Once payment is made it’s up to your financial team to determine when revenue can be recognized, which is a tedious and error-prone process. The right revenue management solution enables you to manage the complete Q2C and revenue recognition processes, as well as streamline revenue management to allocate, reconcile, monitor, and recognize revenue in accordance with ASC 606 and IFRS 15 standards.

Security risks and regulatory non-compliance

When handling the order to cash process manually, it’s almost impossible to adhere to security protocols and compliance regulations. There are PCI security standards for credit card payment processing. DKIM protocol for sending emails from the solution. FIPS 140-2 encryption Level 2 and Level 3 standards adherence. Automation enables you to keep your finger on the pulse of malicious, abnormal, and unauthorized activity.

When it comes to regulatory compliance, whether domestic or international, automation allows you to align with ASC 606 and IFRS 15, maintain internal controls over financial reporting and customer data privacy with SOC 1 & 2 compliance, and secure your customers’ payment and personal information with compliance to PCI and GDPR.

Inaccurate or inconsistent metrics

To maximize the benefits, you should monitor and adjust your O2C processes on an ongoing basis. Doing this requires data from multiple systems that is cleansed and normalized. With accurate and up-to-date metrics, business decisions will be based on intelligent data. To ensure you have all the information required, you need not only reporting but dashboards and analytics that are customizable and available in real time.

Disconnected applications

When systems lack integration, they fragment the order to cash process. This limits your ability to track performance data across the cycle, e.g., customer relationships, sales cycle length, customer onboarding, upselling/cross-sales, canceled orders, unpaid invoices, revenue, customer churn, etc.

Using application programming interfaces (APIs) or enterprise connectors you can streamline everything from sales and provisioning through accounting. This provides end-to-end automation of your critical apps such as financial, customer relationship management (CRM), enterprise resource planning (ERP), business process management (BPM), general ledger, tax solutions, etc. By taking advantage of seamless integration, you’ll reduce manual tasks and errors, avoid revenue leakage, improve customer experiences, and much more.

Optimize the Order-to-Cash Cycle with Automation

There are many benefits to optimizing your O2C cycle. You’ll enhance the purchasing process, eliminate the need to re-enter order information, and fulfill orders quickly and correctly – the first time. All of which minimizes customer support intervention, reduces backorders, decreases DSO, improves revenue recognition, increases cash flow, enriches record accuracy and reporting, and delivers exceptional customer experiences.

BillingPlatform gives you the power needed to automate and streamline the O2C cycle. Our enterprise-grade system supports all your business requirements – any product, any service, any business model – on a single platform. Are you ready to automate your O2C processes and improve customer retention? Reach out to our experts to learn how!

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