Unlock your cash – improve shareholder confidence

Ankur Jain

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Value of Order-to-Cash Optimization

Over the years, the order-to-cash function has been viewed as an administrative process and not a key function within the overall strategy of an organization. As a result of the recent financial crisis, companies are forced to reassess this point of view and have increased their attention on free cash flows as loans and credits are more difficult to obtain. Companies are now focusing on their internal processes to unlock the potential cash trapped in the OTC value chain.

To unlock this optimization opportunity, organizations need to adopt best practices, that will result in unparallel levels of efficiency, and faster and more reliable information about the state of the OTC processes in the organization. A world-class OTC process clearly differentiates the great from the good, significantly improving shareholder confidence, while an ineffective OTC process could be a result of poor cross functional integration.

This article examines the order-to-cash process and provides insight on how to optimize it looking at each segment of the value chain.

A look at the end-to-end order-to-cash process shows that no single department or function owns and controls the entire process. Order-to-cash comprises of a number of functional areas working together to fulfill the customer requirements (See Figure 1).

Figure 1 (click image to enlarge)

This very fact also presents a significant challenge, as will be described below. At a high level, the potential areas impacted by the OTC cycle are:

  • Sales: Responsible for acquiring, maintaining, and receiving orders from the customer
  • Customer service: Captures customer orders and complaints, and performs customer adjustments
  • Manufacturing/Servicing: Executes and ensures delivery of orders
  • Supply Chain: Generates invoices for shipped orders
  • Accounting: Processes credit applications and assigns credit limits, follow-up with customers to ensure their accounts are current & applies payment to customer accounts

Every OTC transaction has to go through the abovementioned departments with multiple handoffs at each level. Unless each of these functions is tightly integrated, there is lots of scope for process breakdown. For example, consider what would happen when the collections department places a customer on credit hold due to lack of payment. This information must be communicated to customer services to prevent orders from passing to order fulfillment; to scheduling and production to ensure that pending orders are not shipped; and to billing, which can alert collections if an order has inadvertently shipped.

Unlocking the Value…

One of the ways to optimize an Order-to-Cash process is to group all the internal sub-processes together. It is important to note the word "All" because without this, there could be undefined boundaries leading to process disconnect, errors, and friction within a company, along with a lack of transparency in problem solving. Consequently, once a problem is known, it cannot be solved in a vacuum and requires the teamwork of various organizations to find a solution. An organization could deliver far superior performance on OTC if it is structured by process rather than by function. For example, if all these departments are grouped together as one, the chances of a process breakdown are significantly reduced. Imagine a scenario where each player in the order to cash cycle is fully aware of the upstream and downstream activities and their impact. As a result, each individual would exercise caution and communicate extensively before and after performing their respective role(s). Traditionally, this has not been the case. As depicted in Figure 1, most organizations are structured by function: Order Management is managed by Sales & Customer Service, Billing by supply chain, Receivables & Collections are part of Accounting, and Credit may be under accounting or sales or both, depending on the organization.

However, transforming is not an easy task, as it requires significant change management across the organization.

Figure 2 (click image to enlarge)

As described in Figure 2, OTC optimization benefits both the organization and its customers. If the organization is able to optimize collections/dispute resolution and reduce DSO, the working capital can be significantly reduced. Operational cost can then be reduced by transferring work to low cost locations, creating flexible staffing levels and implementing technology to eliminate manual efforts to the extent possible.

By kicking off operational excellence projects, the operating teams can provide the business intelligence to identify areas for cost reduction. E.g. reducing bad debt reserves and write offs, or reducing profit leakage. Related to this is the impact of such initiatives on customer satisfaction. Reducing resolution time and fixing processes based on root cause analysis enhances the customer experience. If we move a step further, applying analytics on the operational data helps predict customer behavior and also provides visibility in the form real time reporting.

Once these initiatives areimplemented, an organization can considerably improve its performance in terms of productivity, customer satisfaction, data visibility … while also reducing cycle time, lowering cost, etc…

Best Practices for Optimizing OTC

Figure 3 (click image to enlarge)

For all the above mentioned best practices, technology is a key enabler. An integrated ERP solution that connects all functions and locations provides visibility into data as well as quantitative and qualitative information, which is a critical for streamlining the OTC process. As a result, automating the process is fast becoming an attractive transformational opportunity for companies.


True OTC optimization calls for an end-to-end view, attaining which involves more than just fine tuning systems and processes. It requires a change of organizational culture with substantial support and inputs from senior management.

The key to a successful OTC process is the ability to fulfill orders in time, as this has direct bearing on the cash flow/revenue of any organization. Though there are challenges to implement the best practices described in this article, companies can unlock efficiencies in their OTC process by acting on these measures. The benefits include not only efficiency gains but also empowering the inter-related functions with faster and more accurate information.