What is Order to Cash?

Order-to-cash (O2C) encompasses the complete set of business activities involved in receiving and fulfilling customer orders, extending from the initial order placement through payment collection. It’s a critical process that directly influences a company’s efficiency, cash flow, and customer satisfaction levels.​

There are seven main steps in the order-to-cash process:

1. Order capture and validation
2. Payment processing
3. Order fulfillment
4. Invoicing
5. Accounts receivable
6. Revenue reporting
7. Data management and analysis

How you manage your company’s O2C process directly impacts its liquidity and operational efficiency. By optimizing it, you can improve cash flow, reduce operational costs, and enhance customer relationships.​ Automation tools and integrated software streamline each step, reduce errors, and speed up the cash conversion cycle.

Synonyms

• OTC
• O2C
• OTC cycle

Order-to-Cash vs Quote-to-Cash

Quote-to-cash (Q2C) and order-to-cash (O2C) are two overlapping systems. Quote-to-cash is a broader concept that covers more of the sales cycle, starting with the creation of a quote. It includes price estimates, negotiations, approvals, contracting, and signatures, all of which happen before order-to-cash begins.

Here’s a closer look at the key differences between the two:

Aspect	Order-to-Cash (O2C)	Quote-to-Cash (Q2C)
Starting point	Order placement	Initial quote or proposal request
Scope	Order fulfillment, invoicing, payment collection	Pricing, quotes, approvals, contracts, plus everything in O2C
Focus	Operational efficiency, reducing order errors, speeding up cash flow	Sales effectiveness, deal optimization, revenue maximization
Who’s involved?	Primarily finance, operations, and logistics teams	Sales, finance, legal, operations, and customer success
Best for…	Businesses focused on streamlined order processing and collections	Companies with complex pricing models, subscription services, or highly configurable products

O2C is a subset of Q2C. Once a quote is accepted and turned into a finalized order, that’s where O2C takes over, handling fulfillment, invoicing, and getting paid. So while every company with sales has an O2C process, not all have a full-fledged Q2C process (especially if they sell simple, off-the-shelf products without much customization).

This distinction matters because if you’re optimizing O2C, you’re focusing on efficiency — reducing errors, automating invoicing, and improving payment collection times. If you’re optimizing Q2C, you’re also looking at sales performance and revenue generation. You’re making sure deals are structured well, pricing is competitive, and approvals happen quickly.

Steps in the Order-to-Cash Process

There are 7 steps in the order-to-cash process:

1. Receive the order from your customer.

This is the moment that the order is placed by the customer. The business will be notified via its order management system, and specific people, teams, and systems will be notified about the order in question. This is the very first step in the order-to-cash process, and once completed, the rest of the process can start.

2. Manage the customer’s payment. 

Once the order has been placed, it’s time for the organization to manage the customer’s payment – how it is handled will depend on the customer’s chosen payment method (e.g., credit card, PayPal, or debit card).

The payment infrastructure you have in place will do the majority of the heavy lifting here by submitting it for approval, from there, the system will either accept or approve the payment. Only if and when the customer’s payment is approved, can the order-to-cash process move forward to the next step — fulfillment.

3. Fulfill the order.

Now that payment has been approved, the order itself needs to be fulfilled. Order fulfillment means locating the product/ parts and preparing the item for the customer who purchased it. An inventory management system will do the bulk of the work here, telling those involved in order fulfillment where to find products, etc. 

4. Ship the order.

Once the order has been packaged up, it now gets shipped to the customer – this should be done according to the customer’s chosen delivery method, i.e. home delivery, click-and-collect, next-day, or same-day delivery. This can either be performed manually or in an automated way, but businesses need to ensure the package is prepared for shipment using the fulfillment details, to guarantee that the right item will go to the right customer via the right delivery method and address. 

5. Create the invoice.

A customer invoice is a document that shows a record of the items purchased and the price at which those items were sold to the customer. Creating a customer invoice for each and every purchase and order is how organizations keep track of what’s paid for and shipped, to avoid any monetary discrepancies.

6. Collect the payment.

While the customer’s payment was approved in step 2, it is yet to be collected. Assuming everything has gone accordingly up until now, this step of the cycle should be automated by the order management and invoicing systems an organization has in place. This means the customer’s payment method should automatically process as stated on the invoice.

7. Report and analyze.

The order-to-cash process doesn’t quite stop once the customer’s payment is collected. Businesses need to report on all the data related to the order-to-cash process, this step is made easier by integrated systems such as automated ordering and invoicing, as they manage all data associated with customers, orders and sales.

The reason businesses need to analyze the order-to-cash process data is to discover inefficiencies in the process, rectify them, and ultimately, always ensure a smooth process that supports customers and the bottom line.

Challenges in the OTC Cycle

It’s straightforward in theory. Order comes in, product goes out, payment is collected. But the reality is the OTC process is full of potential pitfalls. There are challenges at every stage of the cycle, some of which might not be immediately obvious.

Outdated order management processes create inefficiencies.

The O2C process starts with order entry, and this is where errors can creep in. If there are manual inputs, miscommunications, or a lack of real-time inventory visibility, the entire process gets delayed before it even begins.

Common issues here include:

• Orders with incorrect pricing, product details, or customer information.
• Stockouts or overselling due to poor inventory tracking.
• Orders getting stuck in approval loops because of inefficient workflows.

There are even some companies that still rely on email or phone orders, which means a lot of manual work and the potential for human error. For them, even an extra space or wrong SKU can cause big delays.

Credit management can make or break your business.

Before you fulfill an order, you need to make sure the customer can actually pay. Extending credit terms can drive sales, but it also introduces risk. Although lots of businesses charge customers up front, there are plenty of instances (especially in B2B) where this isn’t the case.

This opens you up to several potential issues:

• Poorly managed credit approval processes.
• Customers defaulting on payments, hurting cash flow.
• Extending credit to high-risk customers without proper vetting.

If you don’t reassess creditworthiness often enough, this can become even more of a problem. Just because a customer was low-risk a year ago doesn’t mean they are today. Economic downturns, industry changes, and changes in a customer’s own business can all affect their ability to pay.

Inventory problems cause fulfillment delays.

Once an order is placed and approved, it needs to be picked, packed, and shipped. If any part of this chain is inefficient, the customer experience suffers.

• Supply chain disruptions affect lead times.
• Delays happen due to poor warehouse organization.
• Shipping errors send the wrong product or the right product in incorrect quantities.

Customers have come to expect Amazon-like delivery speeds (a.k.a. the Amazon Effect), but most companies don’t have that level of fulfillment efficiency.  In fact, inventory accuracy is currently only 63% in the US.

Invoicing can cause disputes and compliance issues.

If your invoicing process isn’t automated and streamlined, payments get delayed before they even begin. You might send invoices late, with errors, or missing key details. Then, customers will dispute the charges, which stalls payments. And you might overlook compliance with different invoicing regulations (especially if you’re making international sales).

Chasing payments = lost revenue (and productivity).

Just because you sent an invoice doesn’t mean you’ll get paid on time. Managing outstanding payments is one of the most frustrating parts of the O2C cycle, and nearly 15% of all B2B receivables are past due, according to research from PYMNTS.

Late or delinquent payments hurt your cash flow. And if you have no way to track outstanding invoices and aging accounts, you won’t have any idea how much money you’re missing out on (and what is vs. isn’t worth pursuing).

Just because they paid doesn’t mean it’s over.

Even when payments come in, the process isn’t complete until everything is properly reconciled in the accounting system. You must match payments to the correct invoices (especially with partial payments) and reconcile those accounts regularly.

You also have the issues of chargebacks and disputes, which create even more work for your accounting and finance teams. Chargebacks in particular hurt your business because they could result in higher processing fees or losing your ability to accept credit card payments.

Data and reporting are invisible roadblocks.

The average company has 2,000+ data silos, which means there are tons of businesses with data gaps in their O2C cycle.

• No clear visibility into where cash is stuck in the cycle.
• Lack of real-time reporting, leading to slow decision-making.
• Gaps between finance, sales, and fulfillment teams’ data.

These things make it hard to diagnose issues. And you can’t optimize what you aren’t able to accurately measure.

Order-to-Cash Cycle Optimization

As mentioned above, optimizing the order-to-cash process can significantly improve a business’s cash conversion cycle by eliminating efficiencies while also delivering a better experience to customers.

Benefits of optimizing the order-to-cash process

There are three core benefits of optimizing the order-to-cash process:

1. Enhanced customer experience: businesses can create a better fulfillment, invoice, and payment processing experience, which in turn, leaves customers with a positive lasting impression of the company, and increases the likelihood of them becoming repeat loyal customers.
2. Increased revenue generation: by reducing bottlenecks and delays in payment collection, businesses can quickly increase their cash inflow. An optimal fulfillment process also generates greater customer satisfaction, which, again, can lead to repeat purchases and long-term customer relationships.
3. Improved cash flow: Optimizing the order-to-cash process can uncover other ways to save on expenses. Businesses may be able to eliminate errors, streamline inventory processes, and reduce any unnecessary steps that are costing the company. This results in increased cash flow that can be spent on other profitable products and investments.

Order to Cash Best Practices

Running a solid O2C cycle is all about efficiency, accuracy, and automation. If you get it right, you speed up cash flow, reduce errors, and improve customer satisfaction.

Let’s go step by step, breaking down the best practices for each part of the process.

Get orders right the first time.

If you want to avoid order processing nightmares, eliminate manual order entry as much as possible. Integrate your order system with your eCommerce platform, CRM, or ERP. This ensures that orders are captured accurately and consistently.

Use automated order validation to catch errors before they cause problems. Centralize everything in a single system (e.g., orders from an app, website, and third-party listing). And set up real-time inventory tracking to prevent stockouts or overselling.

For large orders, assess credit risk ahead of time.

A strong credit approval process helps you balance sales with financial health. Use an automated credit scoring tool to assess customer risk in real time. Set up credit limits and terms based on customer history and industry benchmarks, and regularly re-evaluate each customer’s creditworthiness, even if they’ve been with you for years.

Also, keep in mind that your biggest customers might be the ones hurting your cash flow if they’re slow to pay. A detailed A/R aging report can reveal if you’re being too generous with credit.

Streamline picking, packing, and shipping.

Your fulfillment process directly impacts customer satisfaction. Barcode scanning and RFID tracking make for fewer mistakes in picking/packing, and an AI-driven warehouse management system (WMS) will help you optimize your inventory.

As for your shipping process, consider using a multi-carrier rate shopping tool to find the best rates and routes for each package. And partner with multiple logistics providers to prevent shipping bottlenecks.

Make it easy to get paid, and easier to track payments.

Automated invoicing software eliminates errors and saves time, but you should also make sure to sent invoices immediately when goods/services are delivered. You should offer multiple payment methods (credit cards, bank transfers, and digital wallets, at a minimum). To get paid on-time, make sure you state your payment terms and due dates clearly and offer discounts for early payments.

Use a billing software that automatically matches payments to invoices, and integrate your payment gateway with your ERP for real-time inventory tracking and updates.

Track your receivables.

Cash flow problems often come from slow collections, not a lack of sales. If you aren’t measuring where cash gets stuck, you leave money on the table. A strong O2C dashboard can reveal problem areas and visualize them for you.

• Track days sales outstanding (DSO) — the lower, the better.
• Monitor order accuracy and fulfillment times.
• Identify slow-paying customers and adjust credit policies accordingly.

Order to Cash Solutions

There are many order-to-cash solutions available on the market. Microsoft Dynamics 365, Oracle Cloud ERP, Oracle NetSuite, SAP ERP SD, SAP Business ByDesign, and Workday are a few of the best-known.

Features in these kinds of platforms include:

• Automated invoice generation and delivery 
• Customizable templates, branding, and formatting
• Payment processing and reconciliation 
• Integration with ERP, CRM, and inventory/warehouse systems
• Automated dunning and payment reminders
• Real-time reporting and analytics 
• Credit management and risk assessment 
• Dispute resolution and deduction management 
• Order management and tracking 
• Customer communication and self-service portals
• Website and ecommerce integrations
• Cash flow forecasting
• Tax and regulatory compliance automation
• Audit trails and security controls
• Multi-currency support

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