Understanding Order to Cash – Finances Aren’t “Set It and Forget It” 

A person with a red hair bow is using a smartphone at a desk with an open laptop displaying a webpage, a notebook with handwritten notes, and a vase with dried flowers.

It happens to the best of my clients… 

They think that after a customer orders something they’ll wake up with the hard-earned cash cha-chinging its way into their bank accounts. 

Who really stops to think about what happens in between the time you’ve made the sale, and the moment you receive the money?

Practically no one.

Except for us finance nerds– and for good reason. 

You see… 

When you map out that *in between* time, you’ll start to identify opportunities and gaps. 

What is OTC (Order to Cash)? 

If you’re already dropping your head in your hands, wondering why I’m coming at you with another incomprehensible financial acronym, I get it. 

But this one’s super simple, so hold your head up high and take a listen. 

Order to Cash, or OTC, simply refers to your order processing system. 

It’s all the business processes involved from the sales order to fulfillment to the customer payment. 

There are always ways to improve it. And when your order management system, you’ll increase customer experience and get peace of mind. 

Who doesn’t want less stress and better customer relationships?

Order to Cash Example

Say you make a sale on January 1st, with delivery scheduled for a month later.

Now, say you’re offering Net 30 payment terms on your invoice. 

At that rate, you won’t be seeing any cash from that sale until at least March 2nd… And that’s assuming everything else goes according to plan. 

And what happens if you need to shell out money along the way? Do you have enough cash flow to support your business for two months? 

If not, it’s time to rethink your order to cash process. 

Now, there are a couple of solutions to the aforementioned situation.

You can…

  • Take a deposit at the time of sale 
  • Collect a milestone payment 
  • Change your payment terms from Net 30 to Due Upon Receipt 
  • Given multiple payment options to encourage quick and easy payments

Pretty handy, huh? 

And there’s even more reason to pay attention to this in-between time.

Because the more automated your OTC process becomes… 

How to Minimize Risk with Order to Cash

And, by the same token, you gain loads more opportunity to plan ahead. 

Once a client places an order, you can automatically set up triggers for payables and receivables in your accounting system, making it easier than ever to manage your cash flow.

While it may require an initial investment of time to get everything set up correctly, you’ll end up reducing errors in your financials.

And even if a week delay doesn’t seem like a big deal now, it could drastically affect your financials depending on when the delay happens. 

If there’s a gap in the Order-to-Cash process at the end of the month or year, your statements will look very different than what you may have expected. But by understanding what’s driving those differences, you’ll get a much more comprehensive story about the health of your business. 

Now let’s take it one step further… 

Evaluating Your Order to Cash Process for Smarter Business Operations

Here’s the thing…

You won’t just understand your cash flow better, but you’ll also get a crystal-clear picture of your operations. 

You’ll get better insight into your invoicing system and inventory management when you optimize your payment collections. 

For example, if you require outsourced freelancers to sell a project to a client, understanding how long it will take to get paid from the client will help you manage your own resources to pay those freelancers.

By now you can probably see why it’s so important to establish a solid OTC process. 

And while it may be tempting to take a “set it and forget it” attitude to every sale you make, savvy business owners take the time to understand what’s happening every step of the way. 

Does the idea of putting together a great process that shaves off time and works on repeat sound totally overwhelming? Don’t worry! Hire an expert to review your OTC process today.

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