Order To Cash

Presented To:
 Defination
• It refers to the steps taken in each process from the time
an order is requested until payment is made in response
to that order.
• From the time the concept of OTC emerged its usage
has predominantly been noticed in the following
industries:
• Fast moving consumer good (FMCG)
• Manufacting
• Leasing
• Service
• Apparel
 Process of o2c cycle
• Sales
• Credit
• Master Data
• Oreder Management
• Billing
• Collection
• cash apps
• Deduction
 Sales
• Sales is the first stage of the o2c cycle
• The otc cycle begins when the sales team identifies a
prospective customer and sends a proposal
• The sales team is the first point of contact for the
customer and therefore plays a crucial role.
• It is the job of the sales team o ensure that the
relationship with the customer is cordial and the
expectation have been set correctly.
• The key player in the sales team is the sales
representative.
 Roles of sales team
• Identifying a customer : The role of the sales
representative is to try and identify customers who would
like to purchase the companies product or services.

• Setting up a meeting: in this meeting the customers

states their requirement and the sales representatives
offer the companies product or services to meet them.

• Setting a proposal: If the customer find the offer

attractive and agrees to the terms the sales
representatives sense a proposal to the customer

• Finalizing the proposal: The proposal is finalized on

the customer acceptance.
 Interlinkages of the Sales Team
Sales

Credit Order
Collections
Management

The Sales Team assists

The sales help the
The Order Management
The Sales Team takes Collection team when
Team with the information
The help of the Credit Customer don’t pay.
Linked to order-related
Team in assessing the Since the sales team is
Queries, product addition
Creditworthiness of In direct touch with
Or deletion requests,
Customers. Customers. It can ask
Special requests from
the customers why
Customers, and promotional
they are not
Discounts that might have
Making the payment.
Been offered to customers
 Performance indicator
• New customers acquired: the sales team must at all
time attempt to increase the customer base of the
company. The sales team should acquire as many
customers as possible. The more the number of
customer acquired by the sales team, the more the
growth of the business.

• Existing customers retained: The sales team is the

first touch point for customer. The sales team has to look
into any issues customer might have and solve them.
Moreover, the sales team is also responsible for offering
trade discounts and new product to customers.
 Credit
• After sales deal is finalized, the sales team passes on
the information about the customer to the credit team.
• The key role of the credit team is to assess the
creditworthiness of the customer.
• The credit team has to make sure they have enough
information about the customers which includes the past
records and the future prospects. The credit team needs
to take everything into consideration before coming to
the conclusion whether credit should be given to the
customer.
• The credit team is also responsible for monitoring the
transaction of the existing customers.
• The key role player in the credit team is the credit
analyst.
 Credit team role
• Processing the credit application form: the credit
analyst enter the customers business details and the
requested credit amount in the form.
• Ascertaining the creditworthiness of the customer:
The creditworthiness is assessed in order to get the
information about the customer ability and willingness to
pay. This helps to reduce potential loss to business due
to bad debt.
• Assigning a risk category to the customer: after the
customer has been approved for credit, the credit analyst
assigns a risk category. This category could be LOW,
MEDIUM or HIGH.
• Reviewing the accounts of the existing customers:
Th3 credit analyst reviews the accounts of existing
customers in order to identify the ones that are headed
towards financial distress.
 Credit Tools
1.The different tools ( agencies) used for ascertaining the
creditworthiness of customers are:
• Dun and bradstreet (D&B).
• Equifax.
• Credit risk monitor
• Experien.

2. This agencies provide financial information and credit

reports of customers to businesses. This reports provide
detailed information on the personal credit and payment
history of the customers.
 Creditworthiness
After the credit analyst assesses the
creditworthiness of the customer, the outcome of
the assessment would be one of the following:

Credit approved Credit rejected

1.In case the credit is approved for

Credit is usually rejected when
the customer, a credit limit will
the credit worthiness assessment
be assigned.
suggest that the customers has
2. Credit limit: this is the limit in
not been prompt in making
which the credit is provide by the
Payments to other companies
Seller to the buyer. It is expressed
and has even defaulted at times.
in monitory terms.
 Risks catagories
After the customers is approved for credit, the customer
may be placed in one of the three risks catagories:

• HIGH: for those customers who have not been

consistent in making timely payments and have often
defaulted.

• MEDIUM: for those customers who have been

consistent in making timely payments but have also
defaulted on a couple of occasions.

• LOW: for those customers who have been extremely

consistent in making timely payments -these are the
good pay masters.
 Action performed by the credit
team
1. Order block: after the credit limit assign to the customer the order
placed by the customer is check against the credit limit.

• If the order with in the credit limit ,it get processed.

• However, it the order is more than the credit limit or the credit limit has
already been reached because of the previous orders, the order goes
on hold this is called order block.
• If the order gets block the account is subjected to credit review. The
credit review is performed by the credit analyst.

2. Hard block: if the account has orders that have already been block and
the customer keeps placing new orders without making payments for
the previous ones, the account is completely blocked.
. This situation is known as hard block. Under hard block, the customer is
unable to place any new orders.
 Credit Team: Interlinkages
credit

Cash Order
sales collections
application management

When the customer

approaches the credit The order manage-
The credit team
limit the credit team ment Team is
takes Information The credit team
checks with the cash dependent On the
from the Sales team seeks the help of the
application team if credit team because
on the Customer collection team
pending payments some of the Orders
whose Credit when theyforesee
Are received from the that go on hold
worthiness is a risk in the account
customer. This helps are review by the
To be checked
avoid the situation of credit team.
hard block.
 Performance indicator
• Turn Around Time (TAT): the TAT refers to the time
period assigned for the completion of a particular task.
Therefore the performance of the credit analyst depends
on the time that h or she seeks to approve or reject the
credit application form of a customer.

• Bad debts, write-offs, and DSO: in case there are high

bad debts, write-offs, DSO, it means that the internal
assessment of customer was not done by the Credit
Team, it reflects badly on their performance. The
performance of credit Analyst is measured on how
effectively they have safeguarded the company’s
receivables.
 Master data
• After the creditworthiness of the customer is assessed
the Master Data Team comes into action.
• The key role the Master Data Team is to give an identity
to the newly acquired customer in ERP. The Master Data
Team does this by setting up an account for the
customer.
• The Master Data team collects all the information about
the customer and enters it in ERP. Typically the account
will have information of the customer addresses, credit
available, product available, executives assigned to take
care of that account and a lot more.
• After the account is set up a unique account
identification number is generated and sent to the
customer.
 Master Data (cont.)
• Since the Master Data Team is also responsible for
maintaining existing accounts, it can be said that the
team is responsible for maintaining customer database
in ERP.

• The key role player in the Master Data Team is the

Master Data Specialist.
 Master Data Team: Roles
• Setting up new accounts: the Master Data Specialist is
responsible for setting up the accounts of the new
customers in ERP.

• Maintaining existing accounts: In case there is any

chance in the customer information the Master Data
Specialist is responsible for updating the same in ERP.
 Payer Partner Function
• In addition to the basic details, The Master Data Specialist also enters
the “Payer Partner Function” details in the customer account.

• These functions define the rights and responsibilities of each partner in a

business transaction. Each business partner has a different role such as:

1. Sold-To: a person/team/location that is responsible for placing an order for

products and services. The sold-To party can also performs the functions
of the payer. Bill-To party or Ship-To party.
2.Ship-To: a person/team/location that is responsible for receiving the
products. The Ship-To party is not necessarily the Sold-To party, Bill-To
party or payer.
3.Bill-To: a person/team/location that receives the invoice for the products
delivered. The Bill-To party is not necessarily the payer who settles the
bill.
4.Payer:a person that is responsible for paying the bills/invoices for the
company. The payer is not necessarily the Bill-To party.
 Master Data Team: Interlinkages
Master Data

Order
Sales Credit Collections
management

The Order
Management Team
If the Master Data
Can contacts the
The Master Data Team enters
Master Data Team
The Master Data Team contacts the payment terms
to request the
Team contacts the Credit Team to Incorrectly, the
addition or deletion
Sales Team to get obtain information Collections Team
of products for the
missing information such as credit limit gets impacted
customer in ERP.
on the customer. and payments terms. because a dispute
They can even
will happen over
request for change
the payments.
in information.
 Master data Team: performance
indicator
• TAT: this refers to the time taken by the Master Data
Specialist in creating the new accounts or updating the
existing ones. Depending on the task to be performed,
the Master Data Specialist is supposed to complete it
quickly.

• Accuracy: while maintaining a quick TAT, the Master

Data specialist is also supposed to ensure great
accuracy in the details being entered in ERP. One small
mistake by the Master Data Specialist while entering the
information can lead to a lot of problems later on.
 Order Management
• After the Master data Specialist is done with his or her
job, the account is assigned to the concerned Order
Management team member.

• This assigned individual is responsible for taking care of

the customer’s orders and making sure that everything is
as per the requirements.

• The assigned individual remains in direct contact with

the customer from this stage onwards and virtually
becomes the most important person for the customer.

• The assigned individual also the key role player in the

Order Management Team is the Order Entry Customer
services Representative (CSR)
 Order Management Team: Roles
• Receiving orders from customers: The Order Entry CSR
remains in direct touch with customers and takes orders
directly from them.
• Entering order details in ERP: After the order is received
the Order Entry CSR makes sure that it is entered in ERP.
The order can be processed only after it has been entered
in ERP.
• Coordinating with the warehouse and carrier: The order
is delivered via carrier that picks up the product from the
warehouse. The Order Entry CSR does the job of
coordinating between these departments.
• Resolving customers queries: Being in direct touch with
customers, the Order Entry CSR also resolves the queries
that customer have.
 Order Management Team: Roles
(cont.)
• Tracking customers orders: The Order Entry CSR,
while coordinating with the carrier managers to track the
customers order as well. The Order Entry CSR makes
sure that orders are delivered successfully.

• Sending Performa invoice: Performa involves are sent

to CIA customers before products are delivered. A
Performa invoice is not an actual invoice, it serves as a
dummy invoice, while informs the customers that the
payment need to be remitted. It is the responsibility of
the Order Entry CSR to send the Performa invoice to the
customer.
 process
• A customer sends a PO to the Order Entry CSR through e-
mail, fax, phone, or Electronic Data Interchange (EDI)
• After the order details are saved the order
acknowledgement is sent to the customer, confirming the
processing of the PO. If there is any discrepancy, the
customer needs to get back within set timelines of the
business.
• The order Entry CSR then coordinates with the warehouse
to check about the products availability.
1.If inventory is not available the customer’s order put on hold.
2.If inventory is available the Order Entry CSR sends a
notification to the warehouse and coordinate with the carrier
to deliver the product to the customer.
 Process (cont.)
• On receiving the notification, warehouse personnel

1.Pack the customer’s order using the information given in the

Pick Ticket, which is like a grocery list that includes product
details such as the quality, size, and delivery . The data
when the product needs to be shipped.
2.Attach a Packing Slip to the shipment. The Packing Slip lists
the items that are packed cartons.
3.Load cartons on trucks and generates a BOL.

• The trucker (carrier) then delivers the product to the

customer.
 BOL
• Three copies of the BOL are generated

• One copy remains with the warehouse as a proof that the

customer’s order has been slipped.

• Two copies are handed over to the trucker who takes the
product out of the warehouse.

• The trucker keeps one copy with him and hands over the
other copy to the customer at the time of the delivery.

• While receiving the product, the customer is required to sign

the trucker’s copy of the BOL which then becomes a POD.

• A customer’s signature on the POD indicates that the product

was received exactly as per the requirements.
 Interlinkages of Order Management
Team
Order
Management

Credit Master Data Collections

The Collections Team is

.any order before reaching The Order Management
Impacted if the Order
the Order Management Team depends on the
Entry CSR enters order
Team has to be approved Master Data Team to add
Details incorrectly. This is
by the Credit Team New products in the
Because of the possibility
Product portfolio of the
Of the occurrence of a
Customer.
Dispute.
 Order Management Team:
Performance Indicator
• Number of orders: This includes the number of orders
processed by the Order Entry CSR needs to process as
many order as possible.

• TAT: This refers to the time taken by the Order Entry CSR
is performing the usual tasks. Depending on the tasks to be
performed the Order Entry CSR is supposed to complete it
quickly.

• Accuracy: The Order Entry CSR, while entering the order

details in ERP needs to make sure that correct details are
entered one small mistake by the Order Entry CSR can
lead to a lot of problems later on.
 Billing
• After the customer receives the products, a bill is sent to the
customer.

• The bill is usually known as an invoice

• The role of Billing Team is limited to send invoices to

customers and taking care of the issues where errors have
been made in the invoice.

• In many businesses, the Billing Team does not exists and

the billing function is handled electronically (through EDI)

• The key role player in the Billing Team is the Billing CSR.
 Billing Team: Roles
• Generating invoice: The invoice lists the product ordered
by the customer prices of the products, and the other
important details.

• Sending invoices to the customers: After the invoice is

generated, it is send to the customer. The customer then
need to make the payment.

• Resolving billing issues, if any: The Billing Team also

come into picture while resolving any billing related issues.
 Cash Application
• The Cash Application team comes into picture when
customers make payments.
• The Cash Application Team makes sure that the payments
made by the customers are accounted for
• The key role of the Cash Application Team is to apply the
payments received from customers against the open
invoices.
• While applying payments, the Cash Application Team
needs to follow the procedures defined for different
situations, for example, when the payment is not received
in full. There are defined procedures for all possible
situations.
• The key role player in the Cash Application Team is the
Cash Applicator.
 Cash Application Team: Roles
• Downloading bank statements: The Cash Applicator
needs to download bank statements in order to retrieve the
details of the payments received from the customers.

• Checking open invoices in ERP: The Cash Applicator

needs to check the status of invoice while checking the
remittance and take necessary actions. The Cash
Applicator also need to prepare reports on the basis of the
status of this invoices.

• Applying payments received from customers: The Cash

Applicator needs to apply the payment as per the
remittance advice, which is a document supplied by the
customer along with the payment.
 Process
• Cash Applications begins with the Cash Applicator
download a bank statement and gathers information about
the customer and the payments.

• After locating the customer in ERP, the Cash Applicator

matches the invoice amount with the amount paid.

• If the amount matches exactly, the total payment will be

applied and the open invoice will be closed in ERP.

• If the customer short pays a deduction is posted on the

account, and it the customer overpays, it is posted as credit.

• If the complete information is not available, the Cash

Applicator will not be able to locate the customer in ERP.
Such cases are then handled by the Collection Team.
 Important Documents
• The two most important document that are required by the
Cash Applicator while applying payments are:

1.Remittance advice: It is an additional document or

information send by the customer along with the payment. A
remittance advice provide instructions on how a particular
payment is to be applied. There is no fixed format for a
remittance advice. It contains the invoice number,
customer’s name, and adjustments or deduction if any

2.Bank statement: It is the statement provide to the account

holder by the bank. A bank statement contains details about
the payment received in the bank. A bank statement can be
assessed from the bank’s web site.
 Situations faced by the cash
applicator
• Overpayment: when the customer pays more than the
actual invoice amount.

• Duplicate payment: when a customer pays twice for the

same invoice

• Unidentified payment: when the customer makes the

payment but doesn’t provide any remittance information.

• Short payment: when a customer pays less than the

actual invoice amount.
 Cash Application team: Interlinkages
Cash Application

Order
Collections Deductions Credit
management

The Collections
The Order Entry CSR
Team will contact
could contact the If the Cash
The Cash
The Deduction Team Cash Application Application doesn’t
ApplicationTeam to
Contacts the Cash Team to check if the apply the payment
check if the
Application team Payment has been the credit limit of
Payment has been
to find out the received. This the customer is
Received from a
details of the usually happens approached as and
Customer. This
Deductions posted when the when more orders
Check is usually
On the account. customer’s orders are placed. This
Done before
have gone on hold. brings the Credit
Placing a call
Team into action.
to the customer
Cash Application Team: performance
Indicator
• TAT: It refers to the time taken by the Cash Applicator in
applying payments to the open invoices on customers
accounts.

• Accuracy: The Cash Applicator, while applying payments,

should take utmost care because a small mistake can have
a huge impact later on.
 Collections
• The collections Team comes into action from the time the
invoice is sent to the customer.

• Collections is th act of collecting money from customers for

products and services sold on credit
.
• The collections begins from the day the invoice gets
generated and continues until its get paid.

• In simple words the collections Team is responsible for

converting receivables into cash.

• The key role player in the Collections Team is the

Collection Specialist.
 Collections Team: Roles
• The main responsibility of the Collection Specialist is to
manage a portfolio.

• A portfolio refers to the set of accounts allocated or

assigned to a collection Specialist to work on

• There are a number of activities that a Collection

Specialist performs in order to manage his or her
portfolio.
 Managing a Portfolio
• Collecting on current invoices: Current invoices are those
invoices that have not crossed the payment due date.

• Resolving unapplied cash: unapplied cash is the payment

sent by the customer that could not be applied to an invoice
because of lack of information.

• Resolving credit: Credit refers to the money owned by a

seller to a customer for a different reasons.

• Monitoring and researching past due invoice: Past due

invoices are those invoices that have crossed the payment
due date.
 Managing a Portfolio (cont.)
• Prioritizing work using different strategies: the Collection
Specialist needs to prioritize the tasks on hand so as to
engage in Smart Collections. There are various strategies
that help in prioritization.

• Resolving disputes: Disputes refers to situations when

customers refuse to pay part or whole of the amount due
from them.

• Engaging in deductions and recollect: A deduction is a

transaction that occurs when a customer shorts pays the
invoice because of some reason, if the reason is to be found
invalid, it is called recollect.
 Disputes
Fulfillment Issues

 Damaged or Defective
Shipment Customer Issues
 Material Shipped to Billing Issues
Another Location
 Short Shipment  Terms Discrepancy
 Overshipment  Pricing Discrepancy
 Shipment Not  Cash Flow  Incorrect or Missing
Received  Bankrupty Purchase Order (PO)
 Refusals and Returns  Payment Made to  Incorrect Tax Charged
Another Company  Incorrect Fright
Charged.
 Invoice Not Received
Or Missing Voice
 Duplicate Billing
 collections Team: Interlinkages
Collections

Order
Sales Credit Cash Application
management

If a customer The credit team The collections team

The Collections
doesn’t make a seeks help of the gets in touch with the
Team will contact
payment, the Collection Team if order management
the cash application
Collection Team they foresee a risk Team while
to check if the
ask the Sales in the account. The resolving disputes.
payment has been
Team to find out Collections Team This is because the
eceived from a
why the customer then provide the Order management
customer. This
is not paying Credit Team with Team has detailed
chech is usually
because the Sales the important information about
done before placing
Team is in direct information, such as orders placed by
a call to the
touch with the reasons for past the customers.
customer.
Customer. due.
collections Team: Interlinkages(cont.)

Collections

Deductions

In case of short payment, the

Deduction Team would research
the case and validate the
reason for short payment.
If the deduction found invalid
it becomes a collectible item
for the Collection Team
 Collection Team: preformance
Indicators
• AR: AR is the money that is owned to a company by its
customers for products and services provided on credit.
Collection Specialist have to maintain a certain percentage
of AR current at all times. It means they have to make sure
that the past due AR is not above a certain limit.
• Account Coverage: this refers t the percentage of accounts
touched by collection specialist out of the total number of
account in their portfolios in their specific period of time.
Collection Specialist have to maintain the account coverage
as per the business standard.
• Invoice Coverage: this refers to the percentage of the
invoices touched by Collection Specialists in their account in
specific period of time. Collection Specialist have to maintain
the invoice coverage as per the business standard.
 Deduction
• On finding that the customer has short paid an invoice by
some amount the cash applicator will post that amount as a
deduction.
• A deduction is the difference between the amount billed to
the customer and the amount paid by the customer. this
then becomes a work item for the deduction team.
• He role of deduction team is to find out the reasons why the
customer has short paid the invoice and then validate the
same.
• In case the customer’s reasons are found to be invalid, the
balance amount becomes a collectible item for the
collections team.
• Note that the role of validating the customers claims may be
played by a collection Specialist as well-it is a business
decision.
• The key role player in the Deductions Team is the
Deduction specialist.
 Deductions Team: Roles
• Finding out the reasons for deductions: The deduction
specialist need to find out why the customer has taken a
deduction. The reason is found out by asking the customer.

• Determining the validity of deductions: The deduction

specialist then needs to do a bit of researching to find out if
the deduction is valid. For researching the Deduction
Specialist may need to contact various people.

• Clearing all valid deductions: in case the deduction is

found to be valid, the Deduction Specialist needs to clear it
from ERP, the amount in question should not remain as a
collectible items.
 Types of Deductions
Deductions are broadly classified into three types:
• Planned deductions: planned deductions are deductions
that manufactures are prepared for and allocate budgets to
settle them. These deduction are part of contractual
agreement and are offered to promote sales. For example,
discount offered by the seller on the purchase of more than
two items.
• Policy deductions: policy deduction occurs when a defined
policy is breached or when an undue advantage is taken by
the customer. For example, a person taking a discount one
day after the date until the discount was valid.
• Preventable deductions: preventable deduction occurs
when the committed level of quality or specification is
violated. These deductions are cost to the seller. For
example, products breaking in transit.
 Possible Reasons for Deductions

Late/Early Delivery
Short shipment Promotional Discount
Freight
Refusal Special Pricing
Overshipment
Damage Return
Fine and Penalty
Pricing Discrepancy Unsaleable
Sales Tax/Tax Exempt

New-item Allowance Advertising Allowance

 Deductions Team: Interlinkages
Deductions

Sales Collections OE CSR Cash Application

In case of short
In case of short
payments, the
payments, the In case of invalid
Deductions Team For valid
Deductions Team deductions, when
would research the deductions, credit
will get in touch these get paid by
case and validate should be issued
with the sales to the by the
the reason for short in the system to
resolve deduction customers, the
payment if the clear off the
or payback cash needs to be
deduction is found deductions and
related issues applied to close
invalid, it became a credits are usually
since sales interact the deduction in
collectible item for raised by OE CSR.
with the customer the system.
the Collections
in person.
Team.
 Deductions Team: performance
Indicator

• TAT: it is time taken by the Deduction Specialist to

resolve a deduction.
• Accuracy: this refers to how accurately the deduction
specialist has checked the details while researching for
the reason and validity of the deduction.