The Comprehensive Guide to Order-to-Cash (OTC) Process

11 November 2011

Download the Guide: Order to Cash PDF Guide

Introduction to Order-to-Cash (OTC) #

Order-to-Cash, often abbreviated as OTC, is an essential business process that starts when a customer places an order and ends when the payment is received and recorded. It encompasses a series of steps like order creation, fulfillment, invoicing, and payment collection. Let’s break it down into these seven key sub-processes:

Customer Engagement: How you interact with your customers.
Order Entry: Taking and logging the customer’s order.
Order Fulfillment: Filling the order either digitally or physically.
Distribution: Logistics and shipping of the order.
Invoicing: Generating a bill for the customer.
Payment Collection: Receiving money from the customer.
Receipt Recording: Documenting the received payment.

Why is Order-to-Cash Important? #

The OTC process is crucial for many businesses because it represents the entire customer experience, from initial contact to final payment. Companies often use ERP systems like SAP to streamline this process. These systems not only automate various tasks but also perform essential functions like credit checks, availability checks, and so on.

Detailed OTC Workflow #

To help you better understand, let’s walk through the key steps:

Sales Quotation: Offering initial prices and terms.
Standard Order: Customer places an order based on the quote.
Shipping: Preparing for shipment.
Delivery: Sending out the products.
Picking: Selecting the right items from inventory.
Goods Issue: Logging that items have left the warehouse.
Billing: Creating and sending an invoice.
Customer Payment: Receiving and recording payment.

Areas Impacted by OTC #

Five functional areas usually interact with the OTC cycle:

Customer Relations: How you acquire and keep customers.
Order Management: The administrative aspects of taking orders.
Supply Chain: How the product gets from you to the customer.
Financial Management: Invoicing and payment collection.
Accounting: Reconciliation and financial reporting.

Automation & ERP Systems #

One way to enhance the OTC process is through automation. ERP solutions, like SAP, help companies streamline their OTC process by integrating different functionalities like order entry, inventory management, and financial accounting. Automating your OTC processes leads to reduced human error, faster execution, and improved operational efficiency.

Performance Metrics #

Companies are always looking to improve their OTC process. Key performance indicators (KPIs) can include metrics related to order accuracy, on-time shipping, and financial figures like Days of Sales Outstanding (DSO).

Technical Features of OTC Platforms #

If you’re considering a robust OTC service platform, look for:

Process Automation: Reduces manual tasks and errors.
Data Management: Intelligent handling of data and exceptions.
State Management: Keeping track of each transaction step.
Exception Handling: Dealing with errors and rollbacks efficiently.

Cost-Benefit Analysis: A Hypothetical Scenario #

Imagine a company spending about 200 man-hours per year on manual OTC testing. Automating this process might take an initial 80 hours of setup, but the ongoing man-hours could be reduced to 35 per year. That’s a clear win for automation.

Quick OTC Process Example (Technical) #

Here’s a quick example for those interested in the nitty-gritty details:

Creating a Sales Order in SAP #

Company Code: 4700
Sales Document Type: ZOR
- Enter customer and order details.

Managing Delivery #

Delivery Document Type: ZLF
- Input Shipping Point and other relevant details.

Billing #

Billing Document Type: F2
- Generate invoice and complete the financial transaction.

This guide aims to provide a comprehensive understanding of the OTC process, its importance, and how automation and ERP systems can make it more efficient. Companies aiming to remain competitive should continually analyze and improve their Order-to-Cash processes.