Connect with us

Corporate Finance

Invoice to Cash vs. Order to Cash Differences and Strategies to Optimize

Abdul Samee

Published

on

In the B2B landscape, two processes often stand out. One is order-to-cash, and the second is invoice-to-cash. While they are often used interchangeably, they have many differences between them. By understanding those differences, you can determine which process matches your business and how it impacts your business. Nevertheless, both processes have cash in common, ensuring that payment must be collected to complete the process. This blog compares the two processes, invoice to cash (I2C) and order to cash (O2C), and discusses the strategies to optimize those processes to improve business efficiency and secure cash flow. 

 

Differences between Invoice-to-Cash and Order-to-Cash

Explaining Invoice to Cash

The process starts with creating an invoice for the customer to collect payments. I2C is a sequential process comprising many steps, from issuing an invoice, sending payment reminders, collecting payments, recording collections and reconciling statements. This process is often associated with the companies making credit sales, where they issue invoices and remind customers to pay to settle the debt. If things go south, like customers not responding or delaying their payments, the accounts receivable (AR) teams must seek legal assistance to recover the debt. The AR teams are responsible for dealing with clients, maintaining their accounts and ensuring the efficiency of operations. 

It is crucial to collect invoices timely because late payments can affect your working capital and cash flow, which can affect the financial health of your business. However, the AR team is required to collect cash without damaging the business relationship with the customer. To address this issue, businesses have optimized their invoice-to-cash cycle, which makes the entire process efficient and increases the productivity of the AR team, relieving them of manual efforts to create invoices and collect payments. 

 

Explaining Order to Cash

The O2C is the company’s order management process that complements the business-customer relationship. In this process, a customer places an order, the sales team confirms the order, and the process ends until the customer receives the order and the business receives payment. The process can get complicated if there is an issue with the product from the business side or the payment is delayed from the customer side. The sales team plays a significant role here in facilitates customers to place orders and record the revenue once payment is collected. 

 

The Difference

The critical difference between the two processes is that invoice-to-cash is one part of the order-to-cash. In I2C, the process starts with issuing an invoice regardless of how the order was placed. On the other hand, O2C encompasses the entire sales cycle, from order placement and receipt generation to closing the sale, which also includes payment collection. Considering the scope of the processes, the I2C has a narrower scope, and the final stage is to collect cash. O2C has a broader scope that encompasses the entire revenue. Finally, the I2C, as the name suggests, starts from invoicing and payment collection. Similarly, O2C starts from order placement to order delivery and payment collection. 

 

The Need for Efficient Invoice-to-Cash Processes

Imagine your sales are increasing, and your AR teams must create numerous invoices for new and existing customers. To meet the demand, your team speeds up the process, and there, you increase the chances of making errors and mistakes. Even if you plan to outsource your process, you will have limited control over the process and how the outsourcing firm deals with your clients to recover debt. All these troubles translate to friction in payment collection and interrupted cash flow due to invoicing issues, manual data entry, and higher operational costs. 

Using legacy systems to manage your invoice-to-cash journey creates inefficiency, which bottlenecks your cash flow. This means the low productivity of your AR team in completing the collection process, which necessitates manual efforts. Those include delivering invoices by mail or email, manually entering data, cross-checking information, and using multiple tracking and record-keeping systems. In addition, it requires calling or texting customers to remind them to pay, which increases the operational cost. All this takes significant labor hours for your accounts receivable teams and compounds the cost of managing the accounts receivable process. 

 

Advertisement
interviews-reviews

Strategies to Optimize Invoice-to-Cash and Order-to-Cash Journeys

Many businesses have implemented accounts receivable automation solutions to address this issue to make the AR collection processes efficient. This streamlines the invoicing process, communication and collection of invoices. Many software-as-a-service (SaaS) solutions can be integrated into your running ERP or accounting software to optimize your I2C or O2C processes. This also has a built-in CRM that allows you to record communication, schedule messages and reminders to customers and directly communicate through the portal’s dashboard. There are a multitude of benefits of this strategy that are presented as follows. 

 

  1. Replace Clunky Invoicing Processes

The traditional systems slow down the invoice-to-cash process, which extends the time to collect payments. Replacing those systems with automatic software can streamline all aspects of the I2C cycle, and this reduces the risk of errors on invoices and data inconsistencies. With an automation solution, you can do away with these systems that create barriers between your orders and collections. 

 

  1. Streamlining Invoice Follow-ups

Businesses often have hard times keeping up with their invoice collections. Implementing an intelligent AR solution allows you to automate communication. This reduces the manual touches to send reminders and dunning messages to customers to settle debt and pay overdue invoices. Customers who often forget to pay their invoices on time will get frequent reminders to keep them on top of their minds without creating frustration. 

 

  1. Live-track Your Invoices and Payments

Automation enables you to gain visibility into your invoice-to-cash workflows. This can help AR teams to proactively identify any issues that may affect your business operations. Whether you need to access a payment or invoice you generated years ago, it is possible with an AR automation solution. It also resolves disputes not supported by manual processes by consolidating information on the system that is traceable by the entire team including managers. 

 

Final Words

Invoice to cash and order to cash are two significant processes in the B2B landscape. Managing those without efficient systems bottleneck your cash flow. By implementing an efficient account receivable automation solution, you can streamline the invoice-to-cash process and unlock your cash flow. This also frees your AR teams, minimizes the likelihood of errors and increases your cash flow by expediting the payment processes.

Continue Reading
Advertisement
Comments
Advertisement Submit

TechAnnouncer On Facebook

Pin It on Pinterest

Share This