Understanding Order-to-Cash Automation Process in ERP

ERP software with its wide range of modules offers a way to centralize information, reduce data errors, automate manual tasks and increase efficiency across different business functions. Increasing efficiency includes reducing both – cost and time.

The finance module within an ERP is a crucial module for accounting and managing business finance. While most ERPs can automate the basic finance functions, certain critical processes such as order-to-cash require specialized add-on softwares for automation.

Accounts receivable within the order-to-cash function is critical to maintaining the overall cash flow. AR function deals with credit risk management, payment processing, collections and dispute resolution. Augmenting the  functionalities of an ERP with an AR automation solution helps deliver quantifiable, financial benefits by increasing team productivity, enhancing customer experience and strengthening the bottom line.

According to PYMNTS’ B2B Pymnts Innovation Readiness Playbook, about 64% of firms are now parting with physical invoices due to the problems they face. The situation is particularly troubling for mid-sized firms generating between $50 million and $500 million as 14.3% of their B2B receivables are overdue. According to a survey conducted by Pymnts, 87% of firms have observed that AR automation speeds up the entire process.

For many organizations today, managing the O2C process is manual and highly error-prone since most ERP systems require manual or programmatic intervention to enable data sharing. This limits the capability of an effective AR process.

What does ERP mean? It stands for enterprise resource planning. ERP is a simple software tool that integrates a variety of business functions such as sales, finance, human resources, marketing, supply chain, security, procurement, and customer service teams.

Once the information is integrated into the central database, authorized users will have a clear view of all the departments, helping them analyze situations and achieve process improvements. This translates to cost savings and better productivity as people spend less time digging for the required information.

ERP has been designed to meet the needs of each business and helps maximize investments, making it a critical tool for companies and industries of all sizes.

What  is remarkable in ERP is that you can customize the software and it comes in a range of pricing to meet the needs of businesses of all sizes. Some of the common ERP systems used by large enterprises are SAP, Oracle Fusion, Microsoft Dynamics; similarly, some common ERP systems used by mid-sized businesses are Oracle Netsuite, Sage Intacct, Infor, and Epicor.

The reports published by Grand View Research indicate that the global ERP software market is expected to be worth $48.22 billion by 2022.

ERPs offer a variety of modules to support various business functions. Each module plugged into the ERP helps provide a single source of accurate data, even as the business adds new modules.

Some of the common ERP modules are:

• Finance
• Procurement
• Manufacturing
• Inventory Management
• Order Management
• Warehouse Management
• Supply Chain Management
• Customer Relationship Management
• Service Resource Management
• Workforce Management
• Ecommerce
• Marketing Automation

ERP modules that you will need to invest in vary depending on the business model, industry, and pain points.

The finance module is the most critical ERP module as it gives you a picture of your current financial status and future outlook. The features of this module include accounts payable (AP), accounts receivable (AR), and managing the general ledger.

You can send e-invoice and dunning emails, track receivables, and generate credit risk reports. The module can also create and store financial documents like balance sheets, payment receipts, and tax statements.

The finance module is designed to automate billing, vendor payments, and account reconciliation tasks to close your books promptly and comply with current revenue recognition standards. It also helps provide the data required by your financial planning and analysis teams to prepare reports, run scenario plans, and improve corporate performance.

Integrating the finances of business functions ensures accounting accuracy and helps meet financial regulations and reporting requirements, however, certain functions like order-to-cash may require add-on tools to automate and optimize processes.

What is order-to-cash (O2C)?

Order-to-cash is the cycle of events that happens from the time a customer places an order to the time when payment is made; that is, the order is converted to cash. Across industries, order-to-cash is also known by various other names such as Invoice-to-cash(Gartner), quote-to-money, bill-to-money, etc.

Why is the O2C solution crucial?

Order-to-cash is significant because it manages invoices, collections, cash flow, improved order fulfillment, and customer relationships. However, failure in invoices or collections impacts cash flow.

Following the whole process from end-to-end is complicated. Early customer data collection helps mitigate data errors.

Even if the customer’s data is collected accurately at the beginning of the process, there is still a chance of an issue while placing an order, billing, etc. When the onboarding process is not correct, it will impact  performance and operating costs and result in unexpected delays in ordering, billing, refilling, etc. Most ERP platforms have developed extensions for businesses to manage the order to cash operations – but the functionality is lacking and largely limited to recording keeping.

Accounts Receivable is the process that generates cash inflow for the company. By Gartner’s definition, accounts receivable is the amount of money that customers owe to a company for delivered goods or services. Accounts Receivable is listed as a current asset on the company’s balance sheet.

It is a crucial step in your O2C process because it manages the outstanding invoices your company has, or the money owed by your clients for products or services sold on credit. A streamlined and efficient AR process positively impacts finance, sales, customer service, and overall operations.

Accounts Receivable tasks such as credit applications from new customers, credit reviews, customer onboarding, invoicing, identifying outstanding payments, collections, deductions, dispute resolution, cash reconciliation can be labor-intensive and tedious. Business challenges such as high debt and low fund growth are the results of poorly managed AR processes. Nearly 24% of the monthly revenue of most businesses is locked in AR payment terms and credit debt.

AR automation helps your AR team save time and focus on more important projects instead of everyday tactical activities like a high volume of invoice matching, verifying payments, emailing invoices, determining the outstanding invoices for follow-up, sending payment reminders, listing short payments, or verifying disputes.

Let’s look at some business-specific challenges that prompt organizations to integrate their ERP with third-party AR software for quicker ROI.

• Inconvenient Software Architecture

Accounting users in most ERPs complain about a lack of flexibility in accessing different finance modules and maintaining consistent customer data, information updates, exception logs etc. For e.g: invoicing templates, payment terms, address changes, credit limits, discounts etc.

• Credit Management Issues

Finance frequently assesses, evaluates, and overrides credit limits, makes real-time changes to place accounts on hold, and dynamically updates the application process.

Most ERPs have limitations with frequent review of the credit approval process which sometimes leads to the ‘Delivery’ being created despite insufficient ‘Backordered Sales Orders’ and orders not getting blocked even though the reviewed credit limit is less.

• Limited Billing and Payment Methods

In most ERPs, the process of billing and invoice management is complex when it involves multiple invoicing formats, units of measurement, currencies, and taxes. Also in most ERP, the built-in payment portal is majorly limited to three modes of payment (Check, Bank Transfer, and Bill of Exchange).

• Manual Data Collection and IT-dependent Ad Hoc Reports

ERP enables users like controllers and CFOs to get complete visibility of their company’s finances, however the collections process still remains mostly manual; users need to extract data and import it to Excel-sheet for correspondence. In many instances, requests for ad hoc reports would require the IT team to intervene and provide support.

AR automation software reduces the need for manual intervention. It also aids in decision-making on matters such as delinquent account prioritization and setting customers’ credit limits.

Benefits of AR Automation

Improving productivity, efficiency, and minimizing human error

• Automating your AR will help remove 95% of repetitive tasks. As a result, your cash application team will now have more time to invest in strategic work and make smarter decisions. Each member of your finance team will be clearer on what they are meant to do as they go about their daily work.
• 41% of all accounting mistakes are human errors, and 55% of businesses cannot identify before executing the tasks. However, such errors can now be detected and avoided.

Complete financial transparency with real-time financial monitoring

• More than 90% of businesses receive late payments from their customers, and this is because they lack AR transparency.
• The analytics and reporting function will allow you to forecast costs and potential revenue, and in turn, help managers make good decisions and deal with changes in the external and internal business environment.
• With effective monitoring, you can detect changes from a strange transaction to a spike in sales; you’ll always know what is going on within your financial sector at that exact moment. You can utilize these contextual data to create better customer experiences, create new data-based products and make more informed decisions in complex scenarios.

Tracking electronic invoices and financial documents

• The digital format will eliminate the need for manual data entry and also prevent misplacing documents. You and your customers will have real-time insight into the status of all invoices and payments, eliminating the need for frequent calls.

Integrating the software and its accessibility 

• The cloud-based software integrates seamlessly with your ERP.
• You’ll be able to access your financial tool and input data from anywhere and at any time as long as you have internet access.

HighRadius provides a complete AR solution designed for your businesses to put O2C on auto-pilot with AI-powered solutions. The integrated cloud platform helps you overcome all concerns associated with your ERP. The ERP-agnostic solution fast tracks your AR functions, including Collections and Cash Reconciliation, and helps you improve your working capital and enables faster cash conversion.

The software seamlessly integrates with your ERP, bridges the gap and helps you overcome traditional ERP challenges. HighRadius Solution is designed to manage multiple data without you having to pull out fragmented data from various sources manually. The solution also ensures data security so that your company does not fall victim to malicious attacks.

Integrate your ERP with AR automation software to oversee all of the business operations at a single location. With technologies like Artificial intelligence, IoT, and Cloud embedded in your AR solution, you will be able to manage cash flows better and limit business impediments. Employ your business with AR automation to efficiently achieve shorter DSOs.

HighRadius is a Fintech enterprise Software-as-a-Service (SaaS) company that leverages Artificial Intelligence-based Autonomous Systems to help 600+ industry-leading companies automate their Accounts Receivable and Treasury processes. The HighRadius Integrated Receivables platform reduces cycle times in your Order to Cash process by automating receivables and payments processes across credit, electronic billing and payment processing, cash application, deductions, and collections. The HighRadius® RadiusOne AR Suite offers a pocket-friendly platform for hundreds of mid-sized businesses to enable faster AR processing and enhance their working capital. HighRadius® Treasury Management Applications help teams achieve touchless cash management and accurate cash forecasting. Powered by the Rivana™ Artificial Intelligence Engine and Freeda™ Digital Assistant for Order to Cash teams, HighRadius enables teams to leverage machine learning to predict future outcomes and automate routine labor-intensive tasks. Processing over $2.23 Trillion in receivables transactions annually, HighRadius solutions have a proven track record of optimizing cash flow, reducing days sales outstanding (DSO) and bad debt, and increasing operational efficiency to achieve a strong company ROI in just a few months. HighRadius is the industry’s most preferred solution for Accounts Receivable & Treasury and has been named a Leader by IDC MarketScape twice in a row.