This is the process of recording the customer's order, either manually or through an automated system.

There are two types of customer who will place orders - New Customers and the existing customers.

Generally all sales and purchase transactions in any business are done on credit. Hence credit check is important before finalizing the order.

Credit Check

• The credit check process in the order-to-cash cycle typically involves evaluating a customer's creditworthiness before extending credit and allowing them to purchase goods or services on credit.
• This process can include verifying the customer's identity, checking their credit history, and assessing their financial stability.
• Once the credit check is complete, a credit limit may be established for the customer, and the sale can proceed. Ongoing monitoring of the customer's account may also be done to ensure they are adhering to the terms of the credit agreement.
• The supplier also reach out to trade references to understand if potential customer has a good history of paying on time or bank references to understand if customer has a healthy account balance

Order processing
This involves verifying that the customer has the necessary credit, inventory availability, and that the order is complete.

After customer is onboarded order needs to be fulfilled,The order management process typically involves several steps, including:

• Order receipt: The first step is to receive the customer's order, which can be done in a variety of ways such as through an e-commerce platform, phone, email, or in-person.
• Order verification: Once the order is received, it needs to be verified to ensure that all necessary information is included and correct, such as the customer's contact information and the items or services requested.
• Inventory check: After the order is verified, an inventory check is done to ensure that the requested items or services are in stock and available for immediate shipment.

Order shipping is getting the product to the customer.

• Vendor either uses in-house shipping or 3rd party logistics/carrier to physically take product from vendor to customer.
• BOL - generated by vendor or carrier to document product type, quantity, etc. contained in a shipment
• POD - usually generated by the carrier and signed off by an employee of the customer who has inspected delivery and signed off on quantity, arrival time, and condition of product.

Once an order is accepted, processed, and shipped the vendor invoices the customer.

• Invoice creation: Using the gathered information, an invoice is created, typically using accounting or invoicing software. The invoice typically includes the customer's name, address, and contact information, a description of the goods or services provided, the price of each item, any applicable taxes, and the total amount due.
• Review and approval: The invoice is reviewed and approved by the appropriate personnel to ensure accuracy and completeness.
• Sending the invoice: The invoice is sent to the customer either by mail, email, or other electronic means.
• Invoice tracking: The invoice is tracked to ensure that it was received by the customer and that payment is received on time.
• Invoice confirmation: The company confirms the customer that the invoice was sent and the due date.

Dispute resolution and deduction management are important aspects of the invoice to cash process, as they involve resolving any disputes or issues that may arise between the company and the customer regarding the invoice.
Dispute resolution

Dispute resolution is the process of resolving any disputes that may arise between the company and the customer regarding the invoice.

Disputes can arise due to a variety of reasons such as incorrect pricing, incorrect quantities, wrong products or services, and more.

Dispute resolution process typically includes:

• Investigation: The company investigates the dispute by reviewing the invoice, the order, and any other relevant documentation.
• Communication: The company communicates with the customer to understand their point of view and to provide any necessary information or clarification.
• Resolution: The company works with the customer to resolve the dispute, which may involve issuing a credit or making other adjustments to the invoice.
• Close: The dispute is closed once it is resolved and the necessary adjustments have been made to the invoice.

Deduction management

Deduction management is the process of managing and reconciling deductions taken by the customer from the invoice amount.

These deductions can be for various reasons such as returns, allowances, discounts, and more. Deduction management process typically includes:

• Validation: The company validate the deductions by reviewing the invoice, the order, and any other relevant documentation.
• Communication: The company communicates with the customer to understand the reasons for the deductions and to provide any necessary information or clarification.
• Reconciliation: TThe company works with the customer to reconcile the deductions, which may involve issuing a credit or making other adjustments to the invoice.
• Close: The deductions are closed once they are reconciled and the necessary adjustments have been made to the invoice.

Not all customers pay on time, so collections teams need to track and follow up on unpaid invoices

• Vendors keep track of “Open A/R” (unpaid invoices) using “Aging Reports” from their ERP system.
• This information tells the collection team which customers need to pay, how many invoices they haven’t paid, how much money they haven’t paid, and for how long they haven’t paid

Basically the aging and collection process in the order-to-cash cycle refers to the management of customer accounts receivable.

This includes monitoring the amount of time that invoices remain unpaid, and taking steps to collect payment from customers.

Aging refers to the classification of accounts receivable by the length of time they have been outstanding.

Collections refer to the process of actively following for the payment from customers. This may include sending reminders, making phone calls, or taking legal action if necessary. The goal of this process is to ensure that a company's cash flow is not negatively impacted by unpaid invoices.

Different customers require different strategies, but generally collections teams use email first. Collection team , calls when email isn’t working, and escalating to managers or sales teams when customer continues to be delinquent.

Once the payment is received cash is applied against the invoice.

Cash application is the process of recording and applying payments received from customers to their respective accounts.

This process is a critical step in the order to cash cycle, as it ensures that the company is accurately tracking its revenue and that customers are being properly credited for their payments.

The general steps involved in the cash application process include:

1. Payment receipt: The company receives payments from customers, either through mail, electronic funds transfer (EFT), or other means.
2. Payment processing: The company processes the payment, typically by depositing it into the company's bank account.
3. Payment matching: The company matches the payment to the appropriate customer account and invoice using information such as the customer's name, account number, and invoice number.
4. Payment posting: The company posts the payment to the customer's account, which typically involves updating the customer's account balance and creating a record of the payment.
5. Payment confirmation: The company confirms the customer that the payment was received.
6. Reporting: The company keeps track of the payment data such as payment amount, date, and method, to identify trends and make informed business decisions.
7. Reconciliation: The company reconciles the payment with the bank account statement, to ensure that all the payments are correctly recorded.