Business Process Management

Order-to-Cash vs Quote-to-Cash: The Similarities and Differences

January 19, 2022

Acquiring new customers is essential for the financial health of your business. If you’re like many of your counterparts then a large amount of time and resources are devoted to the marketing and sales funnels. However, once an order is placed and the prospect becomes a revenue-generating customer, there’s still a lot of work that needs to be done. This is where we get into the differences between order-to-cash vs quote-to-cash. Quote-to-cash begins up front, and is then followed by order-to-cash. Order-to-cash processes can streamline the entire order fulfillment lifecycle, decrease manual effort, and reduce (or even eliminate) profit-draining errors.

Where Does Order-to-Cash vs Quote-to-Cash Fit?

Let’s begin with order-to-cash (O2C). Essentially, O2C consists of six steps that span its lifecycle. These go from receiving the order for products and services through recognizing payment to lifecycle analysis.

  1. Contract management: Once the customer accepts the quote, legal processes begin like developing the contract. This step ensures that the sales rep is creating, negotiating, and complying with all legal terms and clauses. It needs to be noted that OTC doesn’t include contract creation, negotiation or execution.
  2. Order fulfillment: Simply put, once the contract is finalized the product is sent to the customer or the service is scheduled and performed.
  3. Billing and invoicing: Accounts receivable finalizes the bill and sends an invoice to the customer.
  4. Payments and collections: In an ideal world, payment would be received in accordance with the invoice terms. However, this isn’t always the case. When payments begin to reach an overdue status, the account needs to be flagged and accounts receivable personnel should begin contacting the customer. Even with your best efforts, payment may not be received. In this case, collections may be your only recourse.
  5. Revenue recognition: The payment is recorded and revenue is recognized in adherence to accounting standards such as ASC 606 and IFRS 15.
  6. Analysis and reporting: Once the O2C cycle is complete, data that was collected should be analyzed to determine process inefficiencies, and where improvements can be made.

While O2C processes help to reduce inherent complexities found in the O2C lifecycle, it doesn’t include the configuration of products and services, pricing or creating and sending the quotation. Put another way, it is lacking the components of contract lifecycle management. This is why order-to-cash vs quote-to-cash are both critical steps in revenue generation.

Let’s Look Deeper Into Quote-to-Cash

As a prelude to O2C processes, the quote-to-cash (Q2C) processes are performed. As an essential part of sales, configure, price, quote (QPC) are the first steps in the quote-to-cash process.

  1. Configure: This first step identifies the product and/or service selection or product/services bundle that best fits the customer’s requirements. Ensuring the right selection(s) are made is essential to developing an accurate quote and ensuring that the configuration is error-free.
  2. Price: A critical step in the process, pricing determines the cost of the product or service and includes discounts, promotion, packages, and bundles. The automation of QPC provides sales reps with pricing recommendations that are based on your pricing strategies, promotions, and discounts, as well as price optimization based on what the market will bare.
  3. Quote: This step enables reps to easily make modifications to the quote, analyze deal potential and performance, and manage the terms and conditions of the deal. At this point, the CPQ solution will ensure that the quote is error-free and provides the best possible solution for the customer’s unique needs.

By including CPQ in your O2C processes, you get a much richer solution that delivers many benefits such as:

  • Improved ability to identify sales opportunities
  • Automating and expediting the sales cycle
  • Enhanced customer experiences
  • Eliminating silos between sales, legal, and finance processes
  • Better contract management
  • Lower administrative costs
  • Accelerated sales responsiveness time
  • Reduced quotation errors
  • Automated quotation approval processes
  • Faster proposal generation
  • Improved sales closure rates
  • Less order and invoicing delays and errors

Although there’s some confusion between order-to-cash vs quote-to-cash processes, O2C is considered a subset of Q2C. A key difference is that customer needs are more integrated into the Q2C lifecycle, whereas O2C basically handles customer transactions. Essentially, CPQ and contract lifecycle management are not part of OTC processes.

We should note that for subscription-based companies, QTC offers additional benefits. Probably the most significant benefit subscription-based companies receive when adopting QTC processes is fast and automated renewal processes. Which of course increases customer retention – and your profitability!

Take the Guesswork Out of Q2C Processes

Improving the customer lifecycle journey begins well before they actually become a customer. Get the configuration or pricing wrong and you may just lose a potential customer. If this happens too often, you may put the company at risk of diminishing revenue and profitability. An intelligent and automated Q2C solution takes the guesswork out of virtually all of the processes, beginning with configuring the products through to recognizing revenue.

Whether you’re at the order to cash vs quote to cash stage, it’s important to be on the same page. By connecting your customer-facing teams with your back office you’re able to align all Q2C activities. That way you’ll improve productivity, deliver accurate quotations and pricing, fulfill orders faster, and deliver the type of experiences customers expect. With BillingPlatform, you get a unified Q2C solution that supports the entire revenue management process. Starting from the first entry in your CRM system through to managing subscription and usage-based pricing to recognizing payments in the general ledger. BillingPlatform can provide everything you need to truly transform your business and boost your profitability, learn more today.

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