SOLUTIONS: ORDER-TO-CASH
The costs to fulfill customer orders include order taking and customer service, storing and maintaining inventory, shipping and product tracking to ensure delivery. Understanding how a company manages and processes orders and the cost to do so, allows business owners to create budgets, monitor employees and determine where cuts can be made to simplify the process to save time and money.
The two major cost centers for Accounts Receivable are the cost of processing an order and the cost of collecting the amount due. These two measurements are intertwined. Incorrect orders not only add to the cost of order processing, they also add to the cost of collections as customers query invoice accuracy. Producing the perfect order will not only decrease the cost of order processing, it will streamline collections.
The perfect customer order consists of:
- Right quantity
- Damage free
- Arrives on-time
- Arrives at the right location
- Is filled completely on the first call
- Is entered correctly
- Is communicated via a customer-specific medium (e.g. EDI, fax, phone, Internet, etc.)
- Has no invoicing or collection errors.
Faster Customer Response Times
Cost of Finding Documents
Studies by IDC, as well as organizations such as the Working Council of CIOs, AIIM, the Ford Motor Company and Reuters have found that:
- Knowledge workers spend from 15% to 35% of their time searching for information
- 40% of corporate users reported that they cannot find the information they need to do their jobs
- A general estimate is that the typical knowledge worker spends about 2.5 hours per day, or roughly 30% of the workday, searching for information
- A study by Kit Sims Taylor found that knowledge workers spend more time unwittingly recreating existing knowledge than in creating new knowledge
- The cost to locate a lost document can reach $120, and the cost to replace it, as much as $220.
Customer response times lag when it is difficult and time consuming to find the required documentation to support a customer conversation. The time to track down the documents required to validate a response to a question takes much more time than actually finding the answer. Having the right documentation requires two things: first it requires physically locating the required document, second, it requires finding the supporting documentation. In most companies these may actually be in two different physical locations. Sales orders and picking slips may be filed one way while delivery documents and proof of delivery may be filed elsewhere.
Many times the discovery process is interrupted causing the documentation follow through to be aborted until the next day or even until the next customer interaction. This provides both a poor customer experience and a prolonged order to cash cycle.
For more in-depth info, choose your primary function below:
Reduced Days Sales Outstanding
Did you know that in 2013 these were the averages for uncollectable Accounts Receivable?
- 26% of invoices 3 months old are uncollectable
- 70% of invoices 6 months old are uncollectable
- 90% of invoices 12 months old are uncollectable
The longer those overdue accounts receivables languish, the less likely it is that your company will ever be paid.
One of the key contributors to reducing Days Sales Outstanding (DSO) is good customer communications. Giving the customer the documentation, in a timely manner, required by them to support payment, streamlines the collection process. Having access to Sales Orders, Acknowledgements, Picking Slips, Bill of Lading, Proof of Delivery, damage reports, and RMA documents reduces the time required to research customer concerns and promptly ask for payment.
Being able to bundle together all the documents that show the Sales Order life cycle demonstrates proficiency and eliminates uncertainty. The customer’s accounts payable personnel have what they need to support payment authorization. It improves the efficiency of both their Accounts Payable personnel and your Accounts Receivable personnel. The net effect is improved customer relationships and improved cash flow.
For more in-depth info, choose your primary function below:
Cost to Process an Order
Cost to Process a Sales Order (APQC statistics)
Defined as: The cost required to collect and label an order, enter data into a system, initiate work-flows that lead to order fulfillment, and communicate with the customer about the status of the order.
- Best-in-Class (Top 20%): $1.26 average cost to process a Sales Order
- Average (Middle 50%): $5.94 average cost to process a Sales Order
- Laggard (Bottom 30%):$50.70 average cost to process a Sales Order
The sales order starts when the customer communicates a need. Translating this communication into the Sales Order System correctly is the first major task of order entry. Several errors may occur; the customer may ask for the wrong product, the sales order person misunderstands the request, the ship to address is incorrect, or the item is entered incorrectly into the system via keystroke error. This type of error is the most costly as it ripples through the entire process. Warehousing picks the wrong product, shipping delivers the wrong product or to the wrong address, a return material request is processed, shipping receives the product back and it is entered back into inventory. No money is collected from the customer. It doesn’t take many of these errors to go from Best-in-Class to Laggard.
For more in-depth info, choose your primary function below: