What is Order-to-Cash? (O2C)
Order-to-cash (O2C) is the process from receiving a customer order to collecting payment. It includes order management, invoicing, and payment processing.
Order-to-Cash (O2C) refers to the series of business processes involved in receiving, processing, and fulfilling a customer order, culminating in the receipt of payment. In the context of the subscription economy, O2C processes must be automated to handle the unique challenges of subscription-based businesses, where the customer journey from order to payment differs significantly from traditional O2C processes.
The Importance of O2C in the Subscription Economy
The subscription economy has grown significantly over the past decade. However, the O2C processes that subscription-based businesses follow differ greatly from traditional business models.
In addition to traditional steps such as pricing, invoicing, and accounts receivable management, subscription businesses must manage a recurring customer lifecycle. Customers frequently make changes to their subscriptions, requiring the O2C process to be digitalized and automated, particularly regarding recurring payments.
The Difference Between Procure-to-Pay and Order-to-Cash
Although Procure-to-Pay (P2P) and O2C may seem similar, they describe distinct processes. P2P encompasses all business processes related to procurement from suppliers, starting with purchase requisitions. In contrast, O2C covers all processes related to a sale. Essentially, P2P is for procurement, while O2C is for sales orders.
The Difference Between Accounts Receivable and Order-to-Cash
Accounts receivable includes all processes from when a customer makes a purchase until the outstanding debt is collected. On the other hand, the O2C process involves all business processes related to a sale, from order placement to data collection and analysis. Accounts receivable is a subset of the O2C process, focusing on the financial aspect.
The Difference Between Order-to-Cash and Quote-to-Cash
This distinction is the most frequently misunderstood. Quote-to-Cash (Q2C) is a part of sales, and includes CPQ (configure, price, quote). It is a broader process than O2C and includes steps before the O2C process begins. Order to Cash is often considered a subset of Q2C, but Q2C is not always an essential part of a company’s business model. The key Q2C steps are as follows:
Configuration: Identify the product or service that best fits the customer requirements. This is necessary to determine the correct quote.
Price: Determination of price of the configured product or service package.
Quote: The final Q2C step is providing the customer with a quote of the product and service offered as well as the price.
The largest difference is Q2C starts with creating a quote for a customer and ends with the receipt of payment, while O2C begins with receiving an order and concludes with payment collection. Q2C includes additional steps such as generating quotes, negotiating contracts, and managing pricing, which are not part of the O2C process. For many organizations CPQ is unneeded.
In conclusion, Order-to-Cash is an essential aspect of modern businesses, particularly in the subscription economy. Automating and digitalizing the O2C process enables companies to streamline their operations.