Order to cash refers to a particular method by which the sales process is analyzed and broken down to allow businesses to recognize each stage of a sale. While this can be applied to customer interactions in a retail environment, it is most often utilized for analysis of sales between one business and another. It is often used with computer software that can be utilized to evaluate and document the entire process, though it can just as easily be applied to paper records and analysis of sales. Order to cash consists of several stages or elements that make up the basic process of receiving, fulfilling, and charging for an order.
The order to cash process, sometimes referred to as OTC or O2C, begins with the establishment of customer presence. Customers must be identified and contacted to create an agreement by which a sales contract can be established. This can be a one-time sales service or a contractual agreement that results in ongoing sales over an extended period of time. Orders must then be received from the customer, allowing the business to recognize customer need and begin fulfilling the order.
To continue the order to cash process, the order placed by a customer must then be fulfilled on the part of the business. This means that products must be physically removed and prepared for shipment, or digital goods prepared for transmission to a customer. Proper inventory management is a key component to this step of the process, as it ensures that the order can be fulfilled by the company. Once the order is ready, then it can be distributed to the customer, either physically or digitally.
The process then continues once the customer receives the product ordered and is provided with an invoice or bill for the product. Customers must then pay for the products they have received, at which point the invoice is paid and the business can document the receipt of payment. The received payment is then typically applied to a company account from which other deductions, such as employee wages and manufacturing costs, are paid.
This analysis of the order to cash process is fairly general, and can be more fully elaborated for individual companies and business models. A number of different computer software programs have been developed to help track this process. These programs provide utilities for documenting each step of the process, and provide records to both businesses and customers.