Maximizing Revenue Through Order-to-Cash Optimization: Insights from an O2C Leader

Introduction

The Order-to-Cash (O2C) process is more critical than ever to a company’s financial health and customer satisfaction. In our latest Data for Subscriptions episode, Sarika Dua, Financial and Business Systems Director at MasterClass, offered practical insights on overcoming O2C challenges. Through automation, accurate credit assessments, and well-defined metrics, she reveals how an optimized O2C process can unlock significant revenue potential.  

Understanding Order-to-Cash (O2C)

So, what exactly is order-to-cash? As Sarika puts it, “In very simple and layman terms, order to cash is a very rhythmic end to end process, right from the inception when the order is placed by a customer until the repayment is received.” Imagine a customer buying an iPhone: once they pay, O2C covers everything happening behind the scenes until the payment is fully collected. When running smoothly, O2C strengthens a company’s financial stability, but without optimization, costly delays and errors are common. 

The Bottlenecks of O2C Processes

Sarika describes O2C as “the heart of the financial ecosystem for any organization.” These processes directly influence cash flow, but common challenges can disrupt both revenue and customer satisfaction—varying widely by industry, company size, and specific business practices.

Key bottlenecks include: 

• Ineffective contract management: Poor organization and unclear terms in contracts slow down order processing and disrupt cash flow, creating bottlenecks from the start. 
• Delays in customer onboarding and order processing: Inefficient processes when setting up new customer accounts or processing orders lead to slowdowns and data inaccuracies, which can impact revenue flow. 
• Inaccurate invoicing: Errors in invoice details (like amounts or tax calculations) frustrate customers and partners, leading to payment disputes and delays. 
• Broken collections process: Ineffective methods for collecting payments slow down the receipt of funds, disrupting cash flow. 
• Weak accounts receivable (AR) processes and credit risk assessment: Underdeveloped AR practices and inconsistent customer credit checks increase the risk of overdue payments and cash flow issues. 
• Material weaknesses: Inefficiencies in the process often require teams to spend excessive time on manual tasks, reducing productivity. 
• Poor reporting: Delays or inaccuracies in financial reporting make it difficult for businesses to monitor performance and identify needed improvements. 

Addressing these areas can prevent revenue leakage, ensuring a streamlined O2C process that supports growth. 

Revenue Leakage & Common Causes

Simply put, revenue leakage is lost income that a business should have collected. Imagine providing a service, yet money slips through the cracks—revenue left “on the table” without anyone noticing. This often happens when there’s a mismatch between what’s delivered and what’s billed, or between what customers use versus what they’re actually paying for.  

Common Causes of Revenue Leakage

• Billing issues: Ever received an invoice that didn’t add up? As Sarika explains, “inaccurate invoices, such as errors in amount, tax amount, or subtotals” —can cause revenue to slip away unnoticed. 
• Old or clunky business processes: Outdated ways of handling things make it tough to reconcile everything correctly, which means it’s easy for revenue to go untracked. 
• Customer churn: When customers leave, adjustments to revenue aren’t always immediate, and the loss can quietly drain revenue over time. 

Tackling Revenue Leakage: Signs to Look Out for

Wondering if revenue might be slipping through the cracks? Here are a few signs to look for: 

• Inconsistent invoicing patterns: Regularly auditing invoices can help reveal patterns of under billing or missed charges. 
• High dispute rates: Frequent billing disputes with customers can signal inaccuracies that need attention. 
• Slow collections: If receivables are consistently delayed, there may be breakdowns in your Accounts Receivable (AR) process. 
• Unexpected churn: Tracking churn can reveal if billing or service issues are pushing customers away, causing revenue to leak over time. 

Focusing on these indicators can help you spot and stop revenue leakage before it impacts growth. 

Building an Ideal O2C System

An effective O2C system relies on integration and automation to connect multiple processes seamlessly. Sarika highlights that an ideal O2C system is “seamless, with as much automation as possible.” The goal is for teams to collaborate effortlessly, reducing manual work so that everything—from Accounts Receivable (AR) and Accounts Payable (AP) to the General Ledger (GL)—operates as a cohesive unit. 

While the specific setup will depend on your industry and practices, the objective is always to streamline operations.

Key Steps to Enhance Your O2C System:

• Automate Data Workflows: Automation can significantly reduce errors, particularly in complex billing scenarios. 
• Ensure Data Quality: Having clean, reliable data flowing between all systems is vital for a successful O2C cycle. 
• Create a Process Heat Map: By pinpointing areas needing improvement, your team can target their efforts for maximum impact. This visual tool highlights performance levels across the O2C process, helping identify bottlenecks and prioritize enhancements. 

Choosing the Right O2C Application: Build or Buy

When it comes to picking the right application for your order-to-cash system, remember that O2C isn’t just one solution —it’s a network of interconnected systems. You may find yourself asking: should we build an in-house solution or purchase a ready-made one? Sarika advises weighing pros and cons when deciding between in-house and pre-built solutions: “if your IT team is ready to build and maintain it, in-house could work. But a pre-built system already has many optimizations and scalability options.”  

Three Key Considerations:

• IT Resources: Building your own solution requires substantial IT support and ongoing maintenance, which can be a significant commitment. 
• Scalability: A pre-built solution typically adapts more easily as your business grows, allowing you to scale without the added headaches of custom development. 
• Data Security: No matter which option you pick, it’s important to have strong data security and integration in place to keep up with today’s usage-based billing. 

Measuring O2C Performance: Key Metrics and Review Frequency 

When it comes to measuring the performance of your Order-to-Cash (O2C) system, a few key metrics can make all the difference. Consider these important indicators: 

Three Ways to Measure O2C Performance

• Financial Close Process: The time it takes to finalize financials after a reporting period; if it exceeds the average of 4-8 days, it’s a sign to look for ways to speed things up. 
• Days Sales Outstanding (DSO): A metric that shows how long it takes to collect payment after a sale, helping you assess cash flow efficiency. 
• Accuracy of Financial Reports: The reliability of your financial data; accurate reports are essential for making informed business decisions. 

As for how often to review your O2C strategy, Sarika recommends regular reviews, ideally “monthly, but at least quarterly,” to align improvements with company goals.  

3 Takeaways and Our Approach 

As we wrapped up, Sarika left us with three valuable takeaways:  

Prioritize Process and System Optimizations 

Sarika emphasizes the importance of prioritizing process and system optimizations rather than pushing them to the back burner. “Keep your process and system optimization as one of your priorities,” she explained. “Do not de-prioritize it on your list, thinking, ‘Let’s get through the close first, let’s get through this new product initiative first, and we’ll look at optimization later.’” Addressing these optimizations early on can create a seamless workflow, aligning with long-term goals and allowing teams to operate more efficiently. Sarika advises keeping process and system improvements top of mind as key metrics to work toward. 

Maintain Data Hygiene

Maintaining clean, accurate data—and avoiding the pitfalls of dirty data— is foundational to successful optimization, as Sarika points out. “If your data is not correct or pure, it will lead to many issues even if you have done a ton of other optimizations,” she says. Good data hygiene supports system and process optimizations, helping to avoid errors and inefficiencies that can impact even the most optimized O2C cycles. For companies with usage-based offerings, Sarika explains, usage data “is like the peanut butter in the PB and J sandwich.” She adds, if you collect and process usage data in an accurate manner, it will help reduce revenue leakage and churn. 

Invest in Building Robust Use Cases

Building strong, clear business use cases can drive the resolution of everyday pain points. Sarika advises focusing on “the painful points that you want to resolve—it could be as small as a report taking too long to run or ensuring accurate data in the columns and groupings needed.” She encourages businesses to identify these issues so they can take proactive steps to simplify daily workflows. Developing specific use cases not only helps address existing inefficiencies but also enables teams to streamline processes, ultimately making it easier to find solutions to challenges as they arise.  

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