Welcome to a brand new series covering everything you need to know about Order to Cash, the intricate challenges of this process and how modern payment solutions like B2B BNPL can help. Throughout this series, we’ll be introducing you to different aspects of the Order to Cash process so you can better understand how it works and what you need for an efficient Order to Cash flow.

The Order to Cash (O2C) process is the lifeblood of any business, transforming products or services delivered into actual revenue. However, many finance leaders face inefficiencies, delays, and errors that can disrupt cash flow and strain customer relationships. Optimising this process is crucial for maintaining a healthy business and ensuring consistent cash flow.

So, what exactly is the Order to Cash process? More importantly, how can businesses leverage modern solutions like B2B Buy Now, Pay Later (BNPL) to streamline O2C, improve cash flow, and enhance customer satisfaction? In this guide, we’ll break down the O2C process step by step, clarify common misconceptions, and explore how your business can benefit from the latest financial technology.

Understanding the Order to Cash (O2C) Process

The Order to Cash (O2C) process encompasses every step involved in receiving and fulfilling customer orders, from order management to payment collection and reporting. It begins with order management and extends through credit management, order fulfilment, invoicing, payment collection, and reporting. Each stage plays a critical role in ensuring that your business efficiently converts sales into cash, which is essential for maintaining healthy cash flow and keeping customers satisfied.

Key Components of the O2C Cycle

1. Order Management:

This is where the process begins—managing customer orders from the moment they are received to when they are fulfilled. This stage involves capturing order details, confirming availability, and coordinating logistics for delivery. Efficient order management ensures that customer expectations are met and that orders are processed quickly and accurately.

2. Credit Management:

Before proceeding with an order, it’s crucial to assess the customer’s creditworthiness. This step involves setting appropriate credit terms and limits, which helps manage financial risk and ensures that you’re extending credit to reliable customers. Effective credit management minimises the risk of bad debt and contributes to a more stable cash flow.

3. Order Fulfilment:

Delivering products or services accurately and on time is vital to maintaining customer satisfaction. Effective order fulfilment requires coordination across various departments to ensure that everything goes smoothly from picking and packing to shipping. Any delays or errors in this stage can negatively impact customer relationships and cash flow.

4. Invoicing and Payment:

Once the order is fulfilled, an accurate invoice is generated and sent to the customer. This stage is about ensuring that the billing process is seamless, with clear terms and conditions to facilitate prompt payment. Accurate invoicing is crucial for reducing disputes and accelerating the payment cycle.

5. Payment Collection:

Following up on payments is often one of the most challenging aspects of O2C. This stage involves managing any disputes, sending payment reminders, and taking steps to reduce Days Sales Outstanding (DSO), which is the time it takes to collect payment after a sale. Efficient payment collection practices are essential for maintaining steady cash flow and reducing the risk of overdue accounts.

6. Reporting and Analysis:

Finally, all activities in the O2C process need to be monitored and analysed. Reporting on performance, cash flow, and customer data helps you make informed decisions, optimise processes, and forecast future cash flow more accurately. Detailed analytics can identify bottlenecks and areas for improvement, enabling continuous optimisation of the O2C process.

Pain Points in Traditional O2C

Traditional O2C processes can present several challenges that impact both cash flow and customer relationships. Let’s look at some findings from studies in this area to highlight these issues:

• 40% of finance leaders reported manual processes as a major source of inefficiency. 
• 48% of businesses face challenges in timely payment collections due to inefficient follow-up processes and lack of automation.
• 60% of finance professionals lack real-time visibility into their O2C process, delaying issue resolution and decision-making.
• 50% of companies have inefficient credit management processes, leading to increased risk of bad debt.
• Fragmented communication between departments leads to a 20% increase in process delays and errors in O2C operations.

These statistics highlight the pressing issues businesses face with traditional O2C processes. By pinpointing these problems, we can better understand how they manifest in day-to-day operations and their broader impact on a company’s performance.

Take manual processes and errors for example. Manual handling of O2C tasks like order entry, invoicing and payment processing is prone to errors. And of course, mistakes throughout the processes can cause delays, disrupt cash flow, and frustrate customers due to inaccurate shipments or billing info.

Payment collection delays can have obvious negative consequences as well, increasing Days Sales Outstanding (DSO). The issue here is that without automation and timely follow-ups, businesses struggle to maintain steady cash flow, resulting in financial strain. Both of these issues are fundamentally a result of poor visibility, making it difficult to monitor order status and payment progress of a purchase.

Perhaps one of the most prominent challenges of traditional O2C, though, is poor or inefficient credit management. Assessing customer creditworthiness manually is time-consuming and inconsistent, leading to either overly cautious credit terms or excessive risk. Poor credit management can result in bad debt and strained customer relationships.

This is where solutions like B2B Buy Now, Pay Later (BNPL) have been growing in popularity, seeing monumental rise in usage on a global scale. For example, by the end of 2023, the B2B BNPL market reached $14 billion in spend globally.

The Role of Modern Solutions in Optimising O2C

Modern solutions like B2B Buy Now, Pay Later (BNPL) are transforming the Order to Cash process by streamlining operations and enhancing cash flow management. B2B BNPL acts as an innovative extension of the traditional O2C cycle, offering instant invoice terms directly at checkout. This flexibility not only accelerates payment and improves cash flow for both parties, but importantly provides users with a comprehensive, safe and instant way of assessing and managing credit.

How BNPL Integrates with Traditional O2C Stages

1. Credit Management:

BNPL solutions offer real-time credit assessment and automated risk management. This integration ensures that credit terms are set accurately and quickly, reducing the time and effort needed for manual credit checks and minimising the risk of extending credit to unreliable customers. 

2. Order Management:

B2B BNPL solutions integrate seamlessly with e-commerce platforms and checkout systems, facilitating smooth order processing. By embedding financing options directly at the point of sale, customers can choose flexible payment terms without interrupting the order flow, leading to faster and more efficient order management. Solutions like Two’s Merchant Portal, for example, give you everything you need to effectively manage your business orders.

3. Order Fulfilment:

With BNPL, fulfilment processes are closely linked to approved credit terms. This ensures that orders are processed without delays, as financing is secured at the point of sale. The result is faster order fulfilment, which enhances customer satisfaction and maintains the efficiency of the O2C cycle.

4. Invoicing and Payment:

BNPL solutions automatically generate invoices with the agreed payment terms, providing customers with flexible options at checkout. This automation reduces the chance of errors and ensures that invoices are issued promptly, leading to quicker payment cycles and improved cash flow.

5. Payment Collection:

Automated payment reminders and efficient collection processes are key features of B2B BNPL solutions. These tools help businesses reduce Days Sales Outstanding (DSO) and maintain a steady cash flow by ensuring that payments are collected on time with minimal manual intervention.

Take Kandidate, for example, a UK-based embedded recruiter and talent sourcing company. After using Two, they were able to save 15 hours of manual work a week! Check out the case study here.

To learn more about how Two can help your business sell more, reduce admin and improve cash flow, be sure to get in touch!