The order to cash (O2C or OTC) process is critical retailers. And, optimizing OTC processes was hard enough without having to deal with the modern complexities of multichannel selling.
To run a successful retail/wholesale/distribution business, you need to do more than just sell a lot of goods. You need to efficiently manage how those sales turn into operating cash.
This post will dive into some OTC best practices for multichannel retailers–although, they are useful for more than just retailers.
What is Order to Cash?
(If don’t need to review what order to cash is, skip ahead to the best practices.)
First, let’s take a trip back to business school to review what exactly “order to cash” means. I like this definition from SAP’s community network:
In an Order-to-Cash process, everything that leads from the order, packaging, delivery to having the actual money in the bank is included.
In other words, OTC starts with a customer placing an order and finishes when their payment is received, that is, turns into cash that you can use to run your business (operating cash).
Remember, cash and revenue are not the same thing. You may count the revenue from the sale of a $100 bicycle during the month it was purchased. But, if it was purchased with a 3-month payment plan (credit), the actual cash you receive for the bike looks much different. You’ll receive roughly $33 in each of the next three months. That’s what you can actually spend.
That means you can’t sell the $100 bicycle and use the funds to immediately buy a $100 sign for your storefront, for example. You’d have to wait 3 months for last payment.
This is obviously a simple example. Multiply that by thousands of orders across multiple online and offline sales channels. Add in the complexities of account management, if you also sell to other businesses – if you’re a distributor, for instance.
It’s not hard to understand why order to cash is such an important business process to worry about. It’s not hard to see how failing to do it well can harm your business.
Impact of Order to Cash
According to OrderToCash.net, around 30% of your accounting department’s operating costs go toward managing the order to cash process. And, according to Jamel Ziani, former director at CCI BPO O2C, mismanaged OTC processes can cost B2B companies 6-25% of their revenue.
That means a quarter of your sales might just disappear, because of OTC inefficiencies in your business!
The order to cash process touches almost every part of your business, from marketing to operations to finance. That can make it a tough process to optimize. It can also make it difficult to see problems.
But, with the right practices, you can optimize the process for your business. You can mitigate the risk of letting cash leak through the cracks.
Order to Cash Best Practices
The multichannel retailer faces a whole bunch of new challenges in addition to all the challenges with optimizing order to cash. The following are some best practices, specifically helpful for multichannel sellers:
- Remove opportunities for human error.
- Centralize and digitize order fulfillment data.
- Standardize OTC processes across all sales and fulfillment channels.
- Empower your customer service team.
- Use analytics to monitor OTC performance.
Minimize Human Error
Many of the problems that arise during the order to cash problem are the result of human error. Bad things happen when paper forms get passed around (or worse, sticky note scraps), data has to be manually entered into systems, and those systems are separate or incompatible. Mistakes happen in life.
That means you need to take steps that reduce the risk of human error. By digitizing and automating information flows, you rule out data entry problems. You avoid time lag between faxing or (gulp!) mailing paper forms around. Your systems of record just talk to one another.
The key to achieving this is integration. Choose best of breed systems for the individual facets of your business (e.g., eCommerce platforms, point of sale systems) over a single “we do it all” system that over-promises. Then integrate those systems according to best practice – our admittedly biased opinion is to use a multichannel integration platform.
Digitize Order Fulfillment
You’ll also want to centralize and digitize your order fulfillment data. The digitization is kind of a requirement of integrating systems, like we just discussed. Centralizing is important, because you need to be able to reconcile an order quickly.
If you record orders from physical stores in one place and orders from your website in another, how are you supposed quickly see how many orders you have outstanding? How are you supposed to tell your suppliers how many items you need? How are you supposed to identify order dependencies (e.g. both orders bought the last item in stock)?
You can do it, but it’s manual and complicated. And, if you have thousands of orders, it’s really cumbersome.
Digitized, centralized order data is even more critical if you’re drop shipping orders to suppliers. You need to quickly and easily reconcile your purchase orders, shipping notifications, and customer orders. You have to ensure that your supplier shipped the right item to the right place, shipped it quickly, then billed you the right amount.
Your customer’s experience and your company’s financial health depend on it.
Standardize Processes Across Channels
To optimize your order to cash process, you need to simplify it. And, for the multichannel seller, simplicity comes from standardizing processes across all of your sales and fulfillment channels.
With the right technology (see previous two practices), there’s no reason you have to treat webstore sales, marketplace sales, and in-store sales so differently. Sure, each one has a slightly different flair to it, but internal order management processes should be the same.
The same is true for your fulfillment channels. Is there any value in dealing with your suppliers in totally different ways? You want to process inventory and fulfillment in standard ways, to eliminate complexities.
Your team should know exactly what’s going to happen for every sale. They should know they can look in the same place every time. The consistency will create simplicity. The simplicity will create efficiency.
Efficiency creates financial benefits in lower base operating costs and, importantly, reduced waste. Indirectly, efficiency increases customer satisfaction, increasing retention – more financial benefit.
Empower Customer Service
You can minimize the human-error part of order to cash, but you can’t eliminate it. Certain parts of your business simply must be run by humans. Customer service is a classic example, and that unit’s effectiveness impacts your order to cash performance.
Customer service plays a pivotal role between an order and recorded cash. They’ll assist customers through billing questions and issues. They’ll help customers track or change outstanding orders. They’re the frontline for customers who are unhappy and don’t want to pay.
The customer service team must have easy access to the data they require. They cannot operate efficiently if order, customer, and product data is spread out across multiple systems. If any of that data lives on paper, then forget about it.
Making it easy on your customer service reps – just like you do for your customer – will clean up your order to cash process and create a better customer experience.
Monitor Performance With Analytics
Customer service isn’t the only group that needs access to information. All managers need data to help them understand how the business is performing. When you digitize and integrate your retail systems, that data becomes accessible.
Managers will need to be able to see high level financial performance metrics, like cash collections across the company. They also need to drill down into problem areas. Maybe one store is generating bad orders. Maybe a subset of suppliers is particularly problematic.
Without data that expresses the outcome of business, across all business units and all sales channels, how can managers see how effectively the company moves through order to cash?
Organizations that are serious about optimizing order to cash (and most parts of their business) should invest in business intelligence technology. It should expose performance analytics through clear, easy-to-use dashboards. It should show managers exactly the information they need to run the business.
With a fully integrated, digital backbone, there’s really no reason your retail business can’t be run by data-driven decisions.
Order to Cash is just the start.
Order to cash is just one of the many parts of your business to optimize. And, it’s just one of the parts that becomes more challenging when you adopt a multichannel strategy. (To be successful today, don’t you have to?)
Even if you don’t use Magento and Dynamics GP, this white paper will help you navigate some of the complexities of an eCommerce-ERP integration–a critical piece to this puzzle.
Also, check out our ERP connectors, if you’re interested in using a multichannel management platform to help you implement the best practices you just read.