Managing risk is critical for any business. The larger the organization, the greater the opportunity for risk in areas such as customer acquisition, credit management, cash flow and customer satisfaction. As a company grows, it becomes more of a challenge to get a handle on the Order-to-Cash process. Rather than managing each component as separate and distinct elements, it’s best to approach each area of the Order-to-Cash process as part of an end-to-end, integrated system.
Order-to-Cash in Action
In its book entitled The Digital Edge: Exploiting information & technology for business advantage, Gartner discusses how CDW, a leading provider of technology products and services, leveraged information to integrate their supply chain with customer-facing technologies. The integration was designed to make the ordering process more personal for smaller businesses while maintaining its discipline around information management. CDW “created its digital edge by integrating information across the enterprise to deliver a high-touch level of customer service that contradicts conventional wisdom in a high-volume, tighter margin business.”1 In other words, the real value was in the interconnectivity. Gartner goes on to explain the most efficient systems do not merely provide a digital substitute for what was once done by hand; they transform the process until it is valuable in and of itself.
Likewise, a well-developed, integrated Order-to-Cash process can incorporate information, technology, automation and personal interaction for truly transformative results. Here are 5 key areas of the Order-to-Cash process ripe for transformation.
1. Order Management
The best Order-to-Cash systems begin with managing the customer order process. Proper order management includes accuracy, but it goes much further than that. Implementing a robust customer relationship management (CRM) tool, ensuring your customer master data is up to date, and integrating these with a comprehensive Enterprise Resource Planning (ERP) solution, will enable your organization to streamline the ordering process while maintaining that personal touch with customers. Leveraging a good ERP solution also allows for automating much of the ordering process where error and fraud often occur. They also allow organizations to integrate orders, pricing and other critical data throughout the process; each order can inform manufacturing, inventory control and procurement, accounting and shipping. CDW introduced complete order transparency in its B2C technologies to tie together product configurations, order fulfillment, product warranty and software registrations.
2. Invoice Automation
From the minute your sales team or online portal accepts an order and that order is delivered, a good billing system automatically generates an invoice and delivers it to the customer as well as other key stakeholders, allowing for proper tracking and follow up. Whether your organization uses the billing capability of an ERP system or incorporates a third-party solution – such as e-Invoicing – speed, accuracy and interconnectivity are what’s important. This also lends itself favorably to the collection process and helps reduce DSO. The faster the invoice can be delivered to the customer without much manual intervention, the faster an organization can realize payment.
3. Credit Management and Collections
An organization’s credit management process should begin earlier in the process with a sound credit policy. Such a policy will help streamline the ordering process, ensure consistency in billing and avoid non-authorized terms. Once the order has been made, the product shipped and the invoice delivered, the organization can also streamline the collection processes by automating when customer statements are delivered. Instead of relying solely on account management interaction, account statements can be delivered at predetermined intervals. The key is to ensure outstanding payments are made to term and late payments are minimized – all while properly managing customer relationships. Organizations have at their disposal a variety of solutions, such as software as a service (SaaS) and Business Process Outsourcing (BPO), able to directly provide or integrate with other elements of the Order-to-Cash process. Early payment options are also available and can be integrated with existing components. Offering a discount of 1% to 2% for early, electronic payment can significantly improve an organization’s cash flow and keep the end-to-end process humming right along.
4. DSO Reduction
Whether your organization offers services or manufactures a product, Days Sales Outstanding (DSO) is one of the most critical metrics any accounting team must manage. It is the average collection period for accounts receivables and refers to how long it takes for your organization to receive payment. A good ERP system or BPO solution can easily track and help manage an organization’s DSO, making the task much easier to master. Even without these solutions, tracking DSO on a monthly or quarterly basis, using the standard DSO calculation, and actively addressing those problem invoices directly should pay dividends at year end.
5. Cash Application and Reporting
When order fulfillment, invoicing and payment are on-point, knowing what to do with the cash that comes in and properly reporting it is important to the Order-to-Cash process. Thousands of orders, invoices and payments per year can lead to confusion and fraud without a proven system in place. It’s important to know exactly how much cash has come in and exactly how to apply it to the proper customer account in order to make proper reinvestment decisions and time inventory fulfillment. Reporting cash application accounts accurately for quarterly and annual reports is also a must. A number of cash application automation solutions, designed to remove the guesswork and manual intervention of cash application, are readily available – either as an off-the-shelf system or as part of a more robust ERP system.
When organizations understand the value of leveraging information and technology for a more integrated Order-to-Cash process, it adds significant value beyond simple profit and loss. It helps to streamline and add value the entire supply chain, adding real revenue to the balance sheet by reducing waste, fraud and error.
1 the Digital Edge: Exploiting information & technology for business advantage, page 9
Ernie Martin is Founder and Managing Director of Receivable Savvy. He brings over 25 years of experience in financial supply chain management, marketing and communications and draws upon his extensive experience to share knowledge and best practices with AR professionals. His resume also boasts time at several well-known brands and companies such as Tungsten Network, Delta Airlines, CIGNA Healthcare and Georgia Pacific as well as a number of years as an independent consultant.