Order to Cash (O2C) Cycle Business Process Overview in Oracle Cloud Applications
In this topic, we will learn about the Invoice to Cash business process life cycle in greater detail.
The Invoice to Cash process refers to the end-to-end activity — from the moment the Invoice is created to the moment when the customer’s debt (payment) is settled and reconciled with the bank statement.
Overview
Organizations are generally in the business of selling products or providing services to other organizations to cater to the latter’s needs. An important business process life cycle, Invoice to Cash within the Financial Business model, is triggered after the goods have been shipped or after services have been provided to the customer.
The Invoice to Cash helps organizations to:
- Record the outstanding receivables from customers
- Recognize that the revenue complies with the accounting standards
- Ensure disputes or billing issues with customers are addressed in a timely manner
- Ensure timely collection of payments from customers to improve the overall profitability and cost saving
With a good understanding of the basics of the Invoice to the Cash life cycle, let’s now understand how the Order to Ship and Invoice to Cash business processes come together to constitute the Order to Cash business process below.
Invoice to Cash/ Order to Cash Business Process
The Invoice to Cash flow is part of the Order to Cash Business process lifecycle. The Invoice to Cash business flow begins after the sales order has been shipped or services have been provided by your organization to the customer. You can see in this diagram how to Invoice to Cash flow fits within the larger Order to Cash process.
Let’s take a quick look at the Order to Ship and Invoice to Cash lifecycles, which are a part of the overall Order to Cash business process lifecycle.
Books Order
The Order to Ship process starts with sales representatives booking an order for goods and services to be provided to the customer.
Schedules Order
The planner schedules the order and releases for production.
Picks Order in Warehouse
On the scheduled date, the picker picks the goods to be shipped from the Warehouse and keeps them in the staging area.
Ships in the Order
The storekeeper or manager ensures the packing of goods and loading of Shipments to the truck for the customer. This is where the Order to Ship process ends and the Invoice to Cash process begins.
Records invoice and sends to Customer
The Account Receivable Professional or Specialist records the Invoice for goods or services sold to the customer. Any tax is applicable based on the information on the Invoice and based on the legislative requirements added to the Invoice.
Recognizes Revenue
The Accounts Receivable Professional or Specialist executes revenue recognition processes to recognize revenue according to revenue recognition rules.
Sends Customer Statements
The customer receives statements on periodic bases either manually or automatically.
Follows up for Collection Tasks
The collection agent responsible for the assigned tasks then follows up with the customer for timely collection of payments.
Creates Receipt for customer Payment
Once the money is received from the customer, the accounts receivable professional or specialist records the receipts in the system and applies them to existing billing transactions to reduce their outstanding balances.
Reconciles Customer Receipt to Bank Statements & Prepares Cash Position
At this point, the cash manager reconciles bank statements and compares bank statement lines against customer receipts created in the Receivables application. Additionally, transactions like interest earned on deposits are created.
Review Accounting Journals
And finally, accounting entries generated at different points are transformed into journals using rules. Journals are then reviewed by general accountants.
I hope you enjoy reading and understand the processes easily:) If you are not sure what to read next, here are the next articles for you:
I am an Oracle Logistics Consultant with more than 7 years of experience. I help clients to understand software capabilities and to analyze business needs. My main goal is to recommend solutions and ultimately guide through all phases of Oracle Cloud Applications. I am also inspired to write about life, improvement, and personal growth.
