The complete guide to improving order to cash metrics

The order to cash (O2C) process is crucial for receiving customer orders and recognizing revenue. For a software-as-a-service (SaaS) business, this process can have a tremendous impact on everything from user retention to long-term profitability. While qualitative insights like customer feedback are helpful, companies must also track, monitor, and analyze their O2C metrics.

Understanding these metrics can mean the difference between thriving cash flow and persistent financial bottlenecks. Efficient O2C processes also help businesses get paid faster, minimize bad debt, and maintain strong customer relationships.

However, understanding which metrics to track and how to monitor them accurately is easier said than done. Business owners, CFOs, finance, and operation teams frequently encounter roadblocks like invoicing errors, delayed data insights, and disparate systems. These challenges make it difficult for companies to get an accurate understanding of their O2C performance and risk harming long-term financial performance.

Fortunately, strategic tracking, efficient processes, and the right tools make all the difference. In this guide, we’ll explain how order-to-cash metrics work and which metrics every organization should track. We’ll also share common challenges in tracking O2C metrics and how to overcome them to accelerate cash flow while boosting efficiency.

 

Understanding order to cash metrics

O2C metrics measure the effectiveness of each stage in the O2C process, from order management to data analysis. They tell you how quickly and accurately a company can convert sales into cash, identify bottlenecks, and assess the quality of customer service. From understanding the average time it takes to collect payment to the percentage of error-free invoices, order to cash metrics help SaaS businesses identify delays, inefficiencies, and errors.

Tracking O2C metrics requires strategy and refinement, but they allow you to make data-driven adjustments that support business growth. O2C metrics also help businesses:

• Improve cash flow: O2C metrics help you determine whether cash flow issues are due to internal problems with payment collection or external issues like customer delays. By understanding the source of the problem, you can make changes to improve cash inflow and reduce issues downstream.
• Boost customer satisfaction: O2C is a customer-facing process, so inefficiencies could hurt the customer experience. Monitoring O2C performance ensures proper order processing and accurate billing, improving customer satisfaction and, in many cases, retention.
• Minimize risk: Monitoring performance metrics does much more than improve current processes. Tracking credit risk exposure and dispute resolution time helps mitigate potential financial risks by ensuring quicker payments and reducing bad debt.

 

Businesses track their order to cash metrics for multiple reasons. Ultimately, companies that invest in proper analytics stand to make more informed decisions that positively impact every aspect of their business.

 

Key order to cash metrics to track

Companies track many metrics to understand both operational and financial performance. While businesses often prioritize some metrics over others, the following are the most important O2C metrics.

Days Sales Outstanding (DSO)

Days Sales Outstanding measures how long it takes to collect payment after making a sale. Ideally, businesses want a lower DSO, which means payments arrive in less time. A high DSO, on the other hand, means your billing team may have collection issues.

Average Days Delinquent (ADD)

Average Days Delinquent tells you how long payments are overdue. While some payment delays result from internal inefficiencies, many result from late customer payments. This O2C metric is perfect for monitoring which customers frequently delay payments.

Invoice Cycle Time

Invoice Cycle Time measures how efficiently your team generates and processes invoices. It highlights how long your accounting team takes to send invoices after fulfilling an order. Shorter invoice cycle times are ideal because they mean customers receive invoices promptly.

Order Fulfillment Cycle Time

Order Fulfillment Cycle Time tracks how quickly businesses process and deliver orders. A shorter fulfillment cycle gives customers the speedy experience they expect, while longer times indicate operational inefficiencies.

Payment Collection Efficiency

Payment Collection Efficiency assesses the success rate of on-time payments. A high-efficiency rating means your collection efforts are effective.

Dispute Resolution Time

Some customers dispute charges or invoice line items. This order to cash metric measures the average time it takes to resolve these disputes.

Bad Debt Ratio

Bad Debt Ratio calculates the percentage of uncollectible invoices. A high ratio of bad debt signals issues with cash flow and inefficient collection efforts.

Cash Conversion Cycle (CCC)

Cash Conversion Cycle measures the time spent to turn sales into cash. Calculating it requires data on the time taken to sell inventory, collect receivables, and pay suppliers. A shorter CCC signals that a business has faster cash inflows, while a longer one indicates issues with financing.

 

Common challenges in tracking order to cash metrics

These order to cash metrics are essential for identifying areas of friction in the O2C process. However, businesses often encounter roadblocks to efficient tracking, including:

• A lack of real-time data visibility: Delays in information make it difficult to make speedy, relevant decisions for your business. O2C platforms like Zuora integrate workflows and data pipelines, offering complete end-to-end transparency and actionable insights for data-driven decision-making.
• Manual errors: Manually handling invoices increases the risk of errors, which can strain customer relationships. Consider order to cash automation for manual processes like data entry and customer follow-ups to save time and avoid these common mistakes.
• Integration complexities: Disparate systems can lead to data silos, misunderstandings, and poor user experiences. Opt for O2C platforms that consolidate your tech stack into a single view, ensuring a seamless flow of data between systems.
• Inconsistent customer payment: Some order to cash inefficiencies happen on the customer side. While businesses don’t have complete control over customer behavior, late payments still hurt cash flow. Consider offering a variety of payment and billing options, as well as credit terms tailored to each customer based on their payment history.

 

How to improve order to cash metrics

While many of these challenges are difficult to overcome, change is possible. Businesses can improve order to cash metrics through order to cash automation, better collection processes, or O2C-optimized tools. Follow these best practices to see a steady improvement in O2C performance.

Automate invoicing and payment collection

Manual invoicing and payment collection are rife with the potential for errors and delays. Automation speeds up the invoicing process, reduces human errors, and accelerates payment collection. It sends invoices promptly and automates follow-ups, minimizing delays and improving DSO. Consider switching to a tool like Zuora to send digital invoices instantly with multiple payment options. The system also supports automated payment reminders and follow-ups for overdue accounts.

Implement credit risk assessment tools

Delayed customer payments can have a tremendous impact on your business and could affect your BDR. Instead of onboarding new customers immediately, assess their credit risk before signing a contract. Establish clear credit policies that all potential clients must adhere to and require your team to run credit checks on all accounts before onboarding. You may also need to regularly review and update customers’ credit terms based on their behavior, offering less flexibility to customers with a history of late payments.

Streamline dispute resolution processes

Long dispute resolution times can tie up cash flow and hurt the customer experience. Quickly resolving disputes prevents delayed payments, but staying on top of these disputes at scale can be challenging. Implement a centralized system for managing customer disputes to resolve these issues as quickly as possible. Many systems have built-in workflows that automatically follow your standard operating procedures (SOPs), ensuring employees consistently follow approved processes for every dispute.

Integrate O2C with your ERP and CRM

Enterprise resource planning (ERP) and customer relationship management (CRM) platforms are essential to managing resources and improving customer retention. However, these systems often work separately, leading to harmful data silos. Improve order to cash metrics by integrating these systems. The right integrations will sync sales orders, inventory, and collections into a single view. Platforms like Zuora also support real-time reporting across these tools, breaking down silos to improve decision-making.

Leverage AI and predictive analytics

Artificial intelligence (AI) is no replacement for a finance team’s expertise, but it can certainly reduce inefficiencies and improve O2C performance. AI tools like predictive analytics can anticipate cash flow challenges by analyzing payment patterns, predicting customer payment behavior, and identifying risks early to optimize CCC.

You don’t need to create internal tools, either. Many O2C tools include predictive modeling features to forecast potential delays and identify anomalies before they cause problems.

 

How Zuora can help improve order to cash metrics

Monitoring order to cash metrics is crucial for improving cash flow and the user experience. However, automation, integration, and other features can take O2C to the next level. Instead of managing order to cash manually, opt for Zuora’s intelligent solution. You’ll be turning quotes to cash in no time. Zuora offers end-to-end automation for various stages of the O2C cycle, including:

• Invoicing: Zuora’s billing system automates the creation and distribution of invoices, supporting various billing frequencies and pricing strategies. This reduces manual errors and ensures timely invoicing.
• Payments: With integrations to over 40 payment gateways, Zuora streamlines payment acceptance, reduces transaction failures, and enhances the customer payment experience.
• Revenue recognition: Zuora automates revenue recognition in compliance with standards like ASC 606, providing real-time insights and accelerating financial close processes.

 

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