Comprehensive Guide to Improving Order-to-Cash Cycles in Logistics
Order-to-cash (O2C or OTC) is a defining component of your organisation’s success. It’s also vital in driving your company’s relationship with customers. Although most entities dedicate a massive chunk of their resources to the duration before the client places their order, improving your O2C process can lead to immense benefits rippling throughout your company.
Fortunately, you can leverage a reliable integrated software solution to improve the various O2C functions. What’s more, you can streamline the process from the starting point to the end, serve your clients more effectively and faster, minimise delays and errors, and ensure performance data has the optimal impact on your organisation.
This detailed guide covers the main elements of an effective order-to-cash cycle, the importance of improving your current process, and a step-by-step guide to optimising your system.
What Does the Order-to-Cash Cycle Entail?
1. Order Management
2. Credit Management
This is the process of analysing a client’s financial health to ascertain whether they qualify for business credit. Credit management begins with ensuring a potential customer is creditworthy and financially sound, thus minimising the risk of default or delayed payment.
3. Billing and Invoicing
Once the company provides the product or service, the client will receive an invoice. This vital piece of information captures crucial details like a brief but comprehensive description of the products, item costs, fees and taxes, and shipping and billing contacts.
Advanced order management systems can effectively capture such details, process the orders and develop invoices. Some companies have an internal department responsible for printing and mailing, while others partner with third-party specialists.
When clients make invoice payments, the transaction is presented via an online billing platform or paper check. Companies who want to achieve an efficient payment process rely on Electronic Invoice Presentation and Payment solutions. With these systems, customers can easily access voices and complete their payments online.
This is the final step of the order-to-cash process. Companies leverage reporting to get insight into their accounts receivable. Reporting also reveals whether the proper steps are used to collect payments and whether challenges like late-paying customers and disputed invoices impede positive cash flow.
Account receivable teams use reports to make informed business decisions and improve their overall performance in the long run.
Why You Should Improve Your O2C Cycle
You already understand how crucial the order-to-cash cycle is to your business operations. The process can positively impact the way you interact with customers, client retention, overall growth, and company revenue stream. Using an optimised O2C cycle offers the following benefits:
- Your customers will enjoy a streamlined buying process
- The order-to-fulfilment period will substantially reduce
- Accurate order fulfilment the first time a client’s orders
- Timely achievement of customer orders
- Agile conversion of receivables and customer collections
- Reduced instances of form and order information re-entry
- You’ll leave an impression of professionalism, and customers will know that your organisation values their time
- Reduced backorders and accurate demand predictions
- Enhanced records accuracy and data reporting over time
Now that you understand the need to improve your O2C cycle and its potential benefits, let’s explore the different steps of improving the process to function optimally.
How Logistics Companies Can Improve Their Cash Cycle Management
Your order-to-cash cycles should not be dependent on luck or how many times you call your client every week. The most effective transporters today can unlock a strong cash cycle through visibility, automation and receivables flexibility. Lack of a streamlined O2C cycle could jeopardise your ability to address your client needs. This mistake has the potential of a negative impact on your company’s revenue and growth – and you don’t want this to be your experience.
Fortunately, you can consider the following processes to optimise your cycle to ensure it’s ideal for your business and your customers.
The problem with manual involvement is the involvement of human interaction, which can potentially lead to inefficiencies and errors. Automating tasks means there’ll be consistency in the way functions are handled. The approach also lets you measure your performance against a set threshold.
Sending invoices and payment collection should be considered first, thanks to their ease of automation. Efficient programs like QuickBooks let you create these invoices and send them to customers with ease. Your clients will receive digital invoices and can complete the payments online.
The transaction will immediately enter your accounts receivables, and the program will automate a massive percentage of your bookkeeping.
You may also leverage the more comprehensive and costlier programs which offer enhanced automation capabilities. Depending on your current business situation regarding revenue and growth, starting with a smaller automation solution with minimal integration requirements would make sense. You can quickly scale as your organisation grows.
Just like automation, this step also aligns with the main elements of the O2C cycle. Explicit policies and standardised processes facilitate consistent expectations and communications. The more your organisation’s staff members, the more critical it is to have documented procedures. Standardised communication forms ensure your staff get similar instructions for their respective roles.
Assuming your company keeps updated information and a worker exits, they’ll not carry vital information with them. Readily available task documentation will help your new teams get up to speed quickly.
Documenting the entire order-to-cash cycle may take some time, but it’s worth the effort. Once you’ve systematised and documented the cycle, all workers will use a standard process designated for the different tasks, cutting down on errors and variation.
Digitizing your order-to-cash data all in one platform helps you visualize each and every invoice you have and at which stage in the payment lifecycle they are in today. This visibility reduces stress, drives insight into how you should manage your spending and growth plans as and when a strategic decision is required.
For a transporter, the most common reason for payment delay comes down to discrepancies between invoices, transport documents and simple dispute management. A simple typo can push back the payment lifecycle for weeks. This could be resolved by automating document reconciliation, centralizing communication and granting digital access for shippers to view full end-to-end transaction-related documents with a click of a button.
A functioning corporate requires full visibility into its detailed O2C cycles at any moment to grow and make strategic decisions. While it is certainly true for all shippers and cargo owners big and small, many transporters still lack the ability and tools to quickly gauge their cash position or know when to expect payment for their outstanding invoices with each client.
Increase Payment Flexibility
Cargos do not sleep, and often, opportunities for projects and jobs require instant decisions. However, traditional cashflow management strategies are notoriously rigid, slow and unpredictable. Flexible payment options can allow transporters to decide when and how much of the invoice they would like to convert to cash, at what cost.
An optimised and successfully managed O2C process alongside the right technology for your organisation will help you efficiently offer value to your clients. What’s more, you’ll always receive timely payments for your goods or services.
The above process can help you streamline ordering, fulfil client orders on time, reduce errors, enhance reporting, and enjoy other benefits of an optimised O2C cycle. With the many tools available today, the challenge is to connect the dots seamlessly to create a win/win solutions for your client, drivers and partners.
With Haulio, improve your order-to-cash processes by streamlining your trucking orders through our efficient tech platform. It runs on innovative, intelligent technology to meet your business needs and empowers hassle free automation.
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