Strategic Guidance

Expanding Beyond Order to Cash (O2C) for Recurring Revenue Businesses

The goal of Order to Cash (O2C) is to make it easy for your sales team to convert a customer’s quote into cash as efficiently as possible. With all of the technology available to finance departments today, companies have been able to manage their O2C process more effectively over the last decade.

Here’s the Million Dollar Question: In today’s economic environment full of customer-centric business models, is your order-to-cash process helping your business grow, or is it holding you back?

Most businesses avoid this question, at least in the short term. But that’s a mistake you want to avoid. Why do we say that? For starters, you’re here. 

In this order-to-cash guide, we’ll investigate:

  • What is order-to-cash (O2C)?
  • What is the difference between order-to-cash and order-to-revenue
  • The different stages of the order-to-cash process
  • Detecting common problems in the order-to-cash process
  • Solving those problems by using automation 
  • Expanding beyond quote-to-cash to focus on revenue recognition
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What is order-to-cash?

Order-to-cash (O2C) is a critical business process. It’s the bridge between a business’s quote to its customer and actual cash collected. This process manages customer quotes, orders, and invoices – the system tracks sales from beginning to end. In the past, businesses relied on paper documents and manual data entry, and this old way of approaching O2C led to inefficiencies and errors. Without a streamlined O2C process, how will your business know how much money is owed, when you’ll receive payments, and if customers are paying invoices on time?

What’s the difference between order-to-cash and order-to-revenue?

While an Order to Cash system covers quotes, billing, and payments, it does not support one of the most important processes of a finance department – revenue recognition. As Finance and IT departments evolve today in an effort to be a backbone to their company’s growth strategies, they’re now looking for ways to streamline their entire end-to-end monetization process. From quotes and orders, to billing, payments, and collections, all the way down to revenue recognition – this is what’s known as the Order to Revenue (OTR/O2R) process. 

Let’s dive into the main steps of the OTC/OTR process:

  • Quoting

    After configuring your products and services and setting your prices, you’ll create the quote itself. The quote should include all relevant details about the service, such as pricing, delivery date, and terms.
  • Orders

    How’s your company processing orders? It could be via a CRM system with a CPQ with direct sales reps or through an online storefront, a self-service portal, a third-party marketplace, or a partner network. When a customer places an order, activities are triggered, from order tracking to billing and payment collection.
  • Payment and Collections

    Do you have systems in place that can handle any global currency? Ensuring you can fill orders everywhere from Texas to New Zealand is essential for the business. No one wants their brand to be left in the cold regarding something as basic as money conversion. Remember, your company’s taxes are also a critical part of the brand’s evolution. With regularly scheduled transactions, you must keep tax rates current for customers and offers based on address validation, changing rules, and regulations.
  • Billing

    The challenge of accurate billing is invoicing across channels, unifying data, and consolidating invoices – no matter how small (physical goods, one-time charges, services, and subscriptions) —while managing any incurring taxes. And then there’s the transactional data the finance team needs. This is why adopting a solution that works – is critical for continued success down the road – otherwise, one small error can cost the company big.
  • Revenue Recognition

    With growth comes billing and invoicing challenges, but also recognizing revenue. You need to monetize offerings without running into barriers – the entire monetization process should support leveling upward and not turn into a rabbit hole of trying to adapt older strategies that are time-consuming and costly.

Common order-to-cash problems

With so many moving parts, the O2C process often comes with a few issues that can slow your sales team down. That can not only affect the bottomline of your Finance and IT departments, but also hinder the business agility you need to go to market with the right offers at the right time.

Some of the most common problems include:

  • Inaccurate Data

    If the data inputted into your order-to-cash system is inaccurate, it will cause delays and errors, which could cost you money. If a sales representative inputting data into the system makes a mistake, it could result in the system generating an inaccurate quote. 

  • Lack of Visibility

    If you can’t see what’s happening at each stage of the order-to-cash process, then you’re unlikely to be able to identify and fix any issues that arise. This lack of visibility can also lead to customer frustration if they’re not updated on their quote or order status. Visibility into order-to-cash is one thing, but visibility into your recognized data stream is another and arguably a more critical need that has dependencies on all of the upstream financial processes taking place. A lack of visibility reporting and analytics don’t get done in real-time — live financial positions are critical in informing business decisions throughout a quarter.

  • Manual Processes

    If your Order-to-cash process includes a lot of manual work, like data entry or creating invoices one by one, it’s likely to be error-prone and time-consuming. Not only that, but it can also lead to missed opportunities for upselling or cross-selling.

  • Complex Pricing

    Complex pricing is the norm. Companies offer more than just subscriptions: consumption-based offers, hardware products, professional services, bundles, etc. Companies offer a combination of subscriptions, consumption-based offers, hardware products, professional services, bundles. It’s critical to launch these pricing strategies out of the box and automate the billing operation implications each of them come with such as rating and invoicing.

  • Lack of Integration

    If your Order-to-cash process is integrated with your business’s other software programs, you can avoid reporting inconsistencies, data duplication, and other inefficiencies. For best results, you’ll want a system that integrates with every part of your sales process, from your CRM to your back-end financial systems. There needs to be a seamless integration across the monetization process, from quoting and pricing to billing and payments to collections and revenue recognition.

Why is the order to revenue process imperative?

The last few years have been a rollercoaster due to many reasons that aren’t just a global pandemic that exposed a fragile supply chain followed by decade-defining inflation – a lot has happened. (We don’t need to dive way into it. We were all there.) Because of the constant uncertainty, businesses have grown to look over their shoulders constantly.

Over the past two decades, we’ve seen a business shift across industries – from selling one-time transactions to relationship-centric business models – AKA the “Subscription Economy.” 

Growth in the Subscription Economy comes from establishing relationships with customers across industries, resulting in business models shifting as companies nurture and monetize their subscriber relationships. But market demands and subscriber needs change, and companies must act fast to maintain relationships and grow the business. 

Companies have an ever-growing set of evolving digital services, like different pricing, provisions, and ways to track usage. You can create different bundles of these services to keep customers engaged across other channels: e-commerce, in-app, sales, partners, and marketplaces. 

By adding new digital services, transacting through multiple revenue models, offering various pricing plans, selling across multiple channels, providing multiple payment models, and recognizing revenue in numerous methods, companies are seeing growth thanks to Saas.

But companies need to keep pace with changing markets and customer needs – they need to re-think their traditional approach to managing order to cash processes and invest in a Monetization Platform that supports the entire order to revenue lifecycle.

What to look for in a monetization platform that can support OTC/OTR

So, here’s what to look for in a monetization platform that can support the entire order-to-revenue process: It starts with technology – software with automation tools that allow sales teams to streamline the tedious tasks so they can stay focused on selling.

  • Are you introducing new revenue streams?

    You need to launch any pricing model out of the box — from subscription to consumption to one-time transactions. Every company is innovating to stay competitive, looking for new ways to price and package digital services, hardware, bundles, and promotional offers. Business leaders need flexibility, and a central place to monetize a variety of revenue streams.

  • Does your tech allow your business to go to market with agility and flexibility?

    The market moves fast, and customer demands are constantly changing. To respond, companies need to go-to-market with new offerings and deploy new pricing, new packaging, and new promos in hours – not months. Rigid systems and legacy integrations are holding companies back.

  • Is the tech powerful enough – Can it support the end-to-end monetization process with a robust finance system?

    Quote-to-revenue operations are the backbone of monetization strategies. Finance teams need to streamline this process, from Quoting, Orders, and Billing to Payments and Revenue Recognition, to adapt to changing demands.

  • How does the tech keep up with customer demands?

    Customer needs differ and are constantly changing. Companies need to deliver dynamic experiences based on customers’ preferences and actions. Companies must orchestrate experiences across a web of systems, like provisioning, comms, etc. You need to understand the subscriber lifecycle with Identity, Entitlements, and Access Management and then orchestrate a dynamic experience within the application ecosystem.

Every application ecosystem is different. Companies have invested time and effort to build their ecosystems, and reducing the number of custom integrations they need to maintain is essential. Technical leaders and developers want new applications that easily integrate with existing ones using robust SDKs, APIs, and connectors. You’ll ideally need pre-built connectors and APIs that help you easily integrate with a variety of applications, such as a General Ledger, Data Warehouses, taxation systems, payment gateways, and more.

If you’re wondering how your team can make these kinds of changes, we can help. The Zuora Monetization Platform not only automates the order-to-revenue process, but helps nurture and monetize your customer relationships. 

See how your business can improve quotes, speed up order processing, make it easier for customers to pay their invoices, and even identify opportunities to sell additional services. You’ll discover how Zuora’s centralized platform can help automate not only your order-to-cash process but all your subscription order-to-revenue operations. 

The Zuora Monetization Platform can deliver quantifiable value to your business across 5 key areas:

:dart: Offering design
:dart: Financial model
:dart: Enterprise architecture
:dart: Subscriber experience
:dart: Business operations

Find out how much Zuora can save you with our order-to-revenue value calculator.

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