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Order-to-Cash: Definition & important aspects for procurement specialists
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Order-to-cash in a nutshell:
Order-to-cash describes the entire business process from order acceptance to receipt of payment, including all intermediate steps such as order confirmation, delivery and invoicing. Understanding this process is essential for purchasing in order to optimize payment terms and support the company's liquidity.
Example: An automotive supplier optimizes its order-to-cash process through digital automation, reducing the lead time from order to receipt of payment from an average of 45 to 28 days, which improves liquidity by EUR 2.3 million.
Contents
What is the order-to-cash process?
The order-to-cash (O2C) process encompasses the entire sequence of activities from the receipt of a customer order to the receipt of payment. This end-to-end process integrates different areas of the company, such as sales, logistics and finance, to ensure smooth order processing. The aim of the O2C process is to increase efficiency, minimize errors and increase customer satisfaction through on-time delivery and correct invoicing.
Core elements of the order-to-cash process
Importance of the order-to-cash process in purchasing
The order-to-cash process is of central importance for purchasing, as it represents the interface between customer requirements and internal processes. An efficient O2C process makes it possible to optimize supply chains and manage inventories in line with demand. This leads to cost savings, improved liquidity and increased competitiveness. In addition, a smooth process flow helps to strengthen customer relationships and fulfill service level agreements.
Order processing: from manual processing to digital order processing
Order processing, from order to receipt of payment, is at the heart of every company and is crucial for customer satisfaction and efficiency. Traditional, manual processes are increasingly reaching their limits in today's digital world, as they are error-prone and time-consuming. The need to adapt to modern requirements is leading to a shift towards digital solutions. Through transformation, companies can reduce their process costs and gain a competitive advantage.
Old: Manual order processing
Traditional approach:
In manual order processing, customer orders are often received by telephone, fax or e-mail and then entered into the system manually by employees. Every step, from determining requirements to production and invoicing, requires manual intervention. Communication channels between departments are often unstructured, which leads to a loss of information. Delays and errors, such as incorrect order quantities or delivery addresses, are common challenges. Tracking orders is complicated as information is recorded in different systems or even paper documents.
New: Digital Order Processing
Digital Order Processing:
The modern approach revolutionizes order processing through the use of digital technologies. Customer orders are imported directly into the ERP system via online portals or EDI systems, eliminating the need for manual data entry. Workflow automation enables a seamless process flow from order to delivery. Real-time data ensures transparency about the order status in all departments. Artificial intelligence can analyze orders and create forecasts to optimize inventory management. Electronic invoicing and automated payment reconciliation accelerate the financial close.
Practical example: Digital transformation in the consumer goods industry
A leading manufacturer in the consumer goods industry implemented Digital Order Processing to optimize its order processing. By introducing an integrated online ordering system, order entry times were reduced by 80%. The error rate for orders fell by 95% due to the elimination of manual entries. In addition, the delivery time was reduced by an average of two days. Automated invoicing and payment monitoring led to faster liquidity, with a reduction in the average payment period from 45 to 30 days. Overall, the company achieved cost savings of 25% in the order processing procedure and significantly increased customer satisfaction.
Conclusion on order-to-cash optimization
The order-to-cash process is a key success factor for modern companies. The digitalization and automation of the O2C process not only enables considerable efficiency gains and cost savings, but also significantly improves customer satisfaction. Seamless integration of all process steps, well thought-out change management and the consistent use of digital technologies are crucial for success. Companies that take these aspects into account and act in a future-oriented manner create the basis for sustainable competitive advantages in the digital age.
