The Order to Cash Cycle is also referred as O2C Cycle, it is the process contains everything from the order, packaging, and deployment of goods or services to customer requests.
In a business method a contractual relationship is established in the form of subscription or contract. The orders are then received via different sales channels, such as fax, email, phone, sales person or internet. The contractual relationship is confirmed and the orders are fulfilled through logistics and shipping. On completion of whole process an invoice is created and sales are booked. This cycle is completed by the customer care process which includes enquiries, complaints and requests.
An order to cash cycle consists of following sub processes
- Customer Order is documented
- Order fulfilled is scheduled
- Order shipment to customer is performed
- Invoice is generated and sent to customer
- Customer sends payment
- Finally payment is recorded in general ledger
Key Metrics to measure order to cash cycle performance:
- Revenue Percentage: This key metric provides information on the value of the order to cash process in terms of percentage of profit contribution.
- Individual Productivity: This metric provides vital information on the efficiency of the Order to Cash is the one comparing the total order-to-cash process to the order-to-cash process per FTE. This is a measure of each individual productivity.
- Calculation of Day Sales Outstanding: Major problems faced by sales department everywhere is, especially if they are carrying out a considerable amount of production on credit, is the organization of revenue collections from consumers. That is why the calculation of Day Sales Outstanding is a important part of the measurement of the order-to-cash process.
- Regular Reports: Regular reports must be prepared that provides an exact feature of the discounts given, the error rate on order fulfillment, the volume of aging accounts, and other.
- Automation: Automation is big keyword in these days as
What is the extent of the automation?
How much of the process is done manually?
Has the error rate decreased?
Are the orders being fulfilled faster?
Cash being collected quicker?
All these questions need to be regularly answered so that improvements can be made.