Order to cash process: stages and measures
The order to cash process (O2C) covers everything from the moment a customer places an order to the moment you collect the money and record it. APQC describes it as receiving and fulfilling customer requests and getting paid for them. For a distributor the stages usually are order capture, entry, credit check, shipping, invoicing, collections, cash application and disputes.
What is the order to cash process?
Order to cash, often shortened to O2C, is the seller’s side of a sale. APQC describes it as the set of processes for receiving and fulfilling customer requests for goods and services and getting paid for them, from the time the order arrives to the time the payment arrives. Its main components are the customer order, customer credit, order fulfillment, invoicing, and payments and collections.
The mirror image is procure to pay, the buyer’s side, where you order from suppliers and pay them. A distributor runs both. This guide covers the selling side, and if you searched “what is order to cash,” that is the short answer. The rest is about how it plays out in a distributor’s day.
What are the stages of the order to cash process?
Companies split the process differently, and software vendors label the steps their own way. These eight are a common split for a distributor.
| Stage | What happens | Where it tends to stall |
|---|---|---|
| 1. Order capture | The customer’s order arrives by email, PDF, phone, portal or EDI. | Orders sit in a shared inbox until someone opens them. |
| 2. Validation and entry | Someone confirms the customer, ship-to, items, units and price, then keys the sales order. | Customer part numbers that do not match yours, unit-of-measure confusion, price differences. |
| 3. Credit check | The order is checked against the customer’s terms and credit limit. | Held orders wait for someone to notice and release them. |
| 4. Fulfillment and shipping | Stock is allocated, the order is picked, packed and shipped, and the customer is told. | Short stock, substitutions, partial shipments, carrier changes. |
| 5. Invoicing | An invoice is created and sent under the agreed terms. | The invoice does not match the PO (price, quantity, PO number) and the customer rejects it. |
| 6. Payment collection | Payment is requested and followed up until it arrives. | Late payers, missing remittance details. |
| 7. Cash application | Each payment is matched to the invoices it covers. | Short pays, bundled payments, unapplied cash. |
| 8. Reconciliation and disputes | Differences are investigated and settled: pricing, damage, shortages, returns, credits. | Several departments have to agree, so the item drifts. |
Where do manual handoffs and exceptions pile up for a distributor?
These are common patterns, not measured rates. Your own data will show where yours pile up.
- At the front door. The first handoff is from a customer’s document to a person who reads it. If orders arrive in several formats, the order desk rekeys them, and each rekey is a chance for a wrong item, quantity or ship-to. The receiving side of purchase order automation and the structured EDI 850 format are covered in their own guides.
- Between the order desk and the warehouse. Stock the system shows that the shelf does not have, substitutions nobody approved, a partial shipment nobody told the customer about.
- Between the order desk and credit. Held orders waiting for a person to release them.
- Between shipping and billing. What shipped differs from what was ordered, so the invoice must be fixed before it goes out, or it goes out wrong and comes back.
- After the invoice. Short pays, deductions and unapplied cash that need someone to work out what the customer meant.
A wrong item caught at entry costs a correction. Caught after delivery it can mean a return, a credit and an unhappy customer. That is why the front of the process is worth the most attention.
Which order to cash measures are worth tracking?
Five are enough to start. Write down each definition before you measure, because the same name means different things at different companies. APQC has found that the top order-to-cash KPIs are end-to-end process cycle time, days sales outstanding and on-time delivery performance. DSO and on-time delivery are in the list below. APQC’s cycle time runs all the way from order to payment, so it is longer than the order cycle time below.
- Order cycle time. How long an order takes from received to shipped, or to delivered. ASCM’s SCOR model has a standard measure for this, Order Fulfillment Cycle Time (Customer Order Fulfillment Cycle Time in the current SCOR Digital Standard), running from receipt of the order to the customer’s acceptance of the delivery. Many distributors also track received-to-shipped separately, because that stretch is mostly in their own hands.
- Order accuracy. The share of orders that go out right: correct items, quantities and price. Many companies define this narrowly. SCOR’s stricter version is Perfect Order Fulfillment, now listed as Perfect Customer Order Fulfillment: the percentage of orders meeting delivery performance expectations, with complete and accurate documentation and no delivery damage. An order counts as perfect only if every part of it was right, so perfect orders divided by total orders is a harsh number.
- On-time delivery. The share of orders delivered by the date promised. Decide which date counts. SCOR’s version measures delivery against the original customer commit date.
- Days sales outstanding (DSO). How many days of sales sit unpaid in receivables. The Association for Financial Professionals defines DSO as the time between a credit sale and the collection of cash, and gives the formula as average accounts receivable divided by net revenue, times 365 days. Example with fictional numbers: average receivables of $600,000 over a 90-day quarter, on credit sales of $1,800,000, gives 600,000 divided by 1,800,000, times 90, which is 30 days. Other versions use ending receivables, credit sales instead of total revenue, or a different period, so choose one and keep it. Compare the result with your own payment terms, not with a number from the internet.
- Exception rate. This one is not a standard. It is your own count of the share of orders a person had to fix, question or hold before they could be entered. It shows which steps eat the time.
Take two weeks of real orders and measure before you change anything. Without the before, you cannot tell whether a change helped.
What does order to cash automation cover?
The phrase covers different work depending on who uses it. Some products automate the back half: invoice delivery, payment reminders, cash application. Some automate the front half: reading orders and preparing sales orders. ERP suites cover pieces of both. Ask any vendor which stages it handles, today, in writing.
A good first candidate has structured inputs, a clear right answer, and a result a person can check cheaply before anything leaves the building.
| Step | Good first candidate? | What stays with a person |
|---|---|---|
| Reading an order, matching customer and items | Yes, with review | Unknown customers, ambiguous items |
| Checking price against the price list or contract | Yes, as a flag | What to do when a price disagrees |
| Checking stock and drafting the sales order | Yes | Substitutions, partial shipments, backorders |
| Order confirmations, shipping notices, invoice delivery | Yes, rule-based | Wording for unusual situations |
| Payment reminders | Yes, scheduled | Calls on large or sensitive accounts |
| Matching payments to invoices | Yes, for clear matches | Short pays, bundled payments |
| Credit limits and releasing holds | Flag only | Whether to ship to a customer who is past due |
| Discounts and pricing exceptions | No | Margin and relationship decisions |
| Disputes and credits | Gather the facts | The decision and the conversation |
How do you choose where to start?
- Measure two weeks. Count orders by channel, minutes per order, how many needed a fix and what the fixes were.
- Pick the step where exceptions and waiting pile up. For many distributors that is order entry, but check yours.
- Write down the rules a good order desk person follows, including when to stop and ask.
- Keep a person approving before anything is posted or shipped.
- Run beside the current process on real orders, compare the results, then widen.
Frequently asked questions
What is the difference between order to cash and procure to pay?
Order to cash is the selling side: order, fulfillment, invoice, payment. Procure to pay is the buying side: requisition, purchase order, receipt, supplier invoice, payment. A distributor runs both.
What is a good days sales outstanding number?
It depends on your payment terms, industry and customer mix. Compare DSO with your own terms and watch the trend. One large late payer can move it a lot.
Is order to cash the same as quote to cash?
The terms overlap, and definitions vary by source. Quote to cash usually starts earlier, with quoting and pricing. Check which stages a source means before you compare numbers.
Does automating order to cash remove the order desk?
No. Routine lookups and data entry get faster. Judgment calls such as new customers, price disagreements, substitutions and credit decisions stay with people.
Where Dockmend fits
Dockmend is an AI operations employee being built for distributors, wholesalers, manufacturers and 3PLs, aimed at the front of this process. It is meant to read emailed purchase orders, match customers and products, check inventory, prepare the order in your ERP, coordinate shipping and flag exceptions to your staff. Your people approve it and handle the judgment calls. Dockmend is still being built, and we have not announced support for any particular ERP or EDI network. Join the pilot
This guide is general information, not legal, tax, accounting or financial advice. Definitions of measures vary by company, so confirm them against your own accounting policies.