Collection Process of O2C cycle

 Order Placement and Management

The first step in the O2C cycle involves the customer or buyer placing the order through sales. Next, the supplier organization should ensure no delays in accepting the order or having order re-entries.

Credit Management

Once an order is placed, the supplier credit department evaluates the credit risk of the customers. A proper credit management process involves a thorough review of the customer’s credit portfolio and having a credit policy. This ensures that the suppliers are accepting orders from customers who will be able to pay them back.

Order Fulfilment

During order fulfillment, the inventory is constantly checked and updated to avoid any orders that cannot be fulfilled. However, suppose a situation arises where the order is processed, but the product is out-of-stock/not in service anymore. In that case, the customer must be immediately informed, and the order should be canceled immediately to avoid any untoward issues towards billing and payment. Fulfilling the order within the said period prevents unnecessary hassle for the company and solidifies the customer’s trust in the company, which is vital.

Order Shipping

As a next step, the order gets prepared for shipment, and it is handed over to the carrier services, who deliver it to the customer. After the delivery, the O2C team collects the following documents from the carrier service:

Proof of delivery – The document includes the list of goods sent and their quantity, signed by the customer’s warehouse representative.

Bill of lading – The detailed list of truck cargo in the form of a receipt that the shipper of the cargo gives to the person consigning the goods.

In case of any dispute resolution after, these bills are considered for the resolution process.

Customer Billing or Invoicing

Invoicing is important post-delivery to ensure a smooth and hassle-free payment from the customer. The billing & invoicing team generates invoices and delivers it to the customers via emails, postal mail, EDI, fax and other channels. Once the customer makes payment and the O2C team receives it, the O2C team marks their open invoice as closed.

Payment Collections

Organizations have dedicated collections teams who are responsible for recovering outstanding invoices. Collections or dunning can be done via calls or emails. This process is vital, primarily when a company trades in its goods on credit. However, if there is a lapse in the payment and the invoice remains unpaid, the customer must be flagged, and their credit must be put on hold. The organization should review this periodically to keep themselves updated with bad debt forecasts and proceed accordingly.

Cash Reconciliation and Ledger Management

Once payment is received, it is then matched with the open invoice to reconcile cash. It is then added into the general ledger for the record. If there is a dispute that arises due to this, it should be resolved instantly to avoid any further workload on the collections department.

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