Best Practice: How to Optimise Order-to-Cash

by Cesar Bacani and Melba-Jean V. Bernad, 26 August 2009

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O2C order to cash supply chain

It’s a basic tenet of business and something that all finance executives know in their bones, but we’ll say it anyway: Money is the lifeblood of any company. That’s why the stars are the sales people who bring the stuff in, the producers of goods and services without whom there will be nothing to sell, and the top managers who oversee the entire enterprise.

It’s sometimes easy to forget the back office, such as the order-to-cash process. But that’s a bad mistake to make in this current recessionary environment. As Jamie Liddell of Shared Services and Outsourcing Network (SSON) observes: “Choke up here and you’re depriving your organisation of critical energy at the worst possible time.”

SSON, a website for practitioners, providers and advisors in the shared services and outsourcing industry, asked its members to share their ideas on the best ways to optimise order-to-cash. The result is a list of Top Ten Tips. The ideas are orientated towards shared-services centres, but finance functions everywhere will find many useful insights.

The best-practice suggestions range from the basic – make sure that all promises to pay are recorded and followed up – to the contentious, such as front-loading some collection responsibilities to the sales teams.

We are particularly struck by Tip No. 2, which urges identifying and taking steps to mitigate risk at the customer level. “This doesn’t necessarily have to involve a full health-check every week, but a closer look on a more regular basis than what was being conducted in the boom times would be a start,” writes Liddell.

The Doctor Is In

Edgewater Technology, a management and technology firm, doles out advice as well. A weblog entry on its site asks the question: Does Your Order-to-Cash Process Need a Check-Up?

One symptom may be high volumes of billing errors, which unnecessarily delay payments. There are many possible causes, such as price lists and promotions being maintained offline, manual re-entry of orders from handwritten order forms, manual handoffs to fulfillment team.

The prescription? “Take a look at the integrated operating platform between your customer relationship management (CRM), Order Entry, Finance and Supply Chain Management systems,” Edgewater recommends. “Too many manual interventions across the lifecycle of an order leave the doors wide open for errors.”

Over at gtnews, a website for global treasury and finance issues, Citi banker Mohammad-Ali Faruqi also advocates straight-through processing of collections. He conjures up a nifty graphic entitled “Anatomy of the Cash Trap” that neatly encapsulates the choke points from order to collection to reporting and analysis.

He then follow up with another chart called “Approach and Methodology,” which not only contains recommendations abut also points out the metrics to measure achievement.

Another useful source for optimising order-to-cash is a white paper written by Deb Miller, director for manufacturing and retail strategy at infrastructure software provider Software AG.

In “Using an Order-to-Cash Process Framework to Improve your Supply Chain Performance,” she writes about the challenges companies face in improving the order-to-cash process, the key performance indicators that are significant to understanding and perfecting the process, and related technology assets required for the job.

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