I spent a fair amount of time working on SAP implementations back in the day, and one of the modules that came up again and again was Order to Cash. People throw the term around in meetings like it means something obvious, but if you ask five people what OTC actually covers, you will get five different answers. So here is my take on it — not a textbook definition, but what it looks like from the inside.
What OTC Is
Order to Cash is the full lifecycle of a customer order. It starts when someone places an order and ends when the money lands in the bank and shows up in the accounts. Everything in between — the order entry, the picking, the shipping, the invoice, the payment — is part of the same chain. Break any link and the whole thing gets messy.
The reason it matters is that it touches nearly every department in a company. Sales, warehouse, logistics, finance, accounting. Everyone has a stake in whether the process runs smoothly, and everyone has a different idea of what “smoothly” means.
The Steps, In Practice
I have seen OTC mapped out in seven steps, eight steps, ten steps. The truth is it depends on the business. A software company does not ship physical goods. A manufacturer does not deal with digital licences. But the core flow is always the same:
Sales quotation. Before an order exists, there is usually a quote. You tell the customer what something costs, what the terms are, how long delivery will take. This step is deceptively important because the quote locks in pricing and terms that the rest of the process has to honour. Get it wrong and you are either losing money or losing the customer.
Order entry. The customer says yes. Someone — or some system — records the order. In a well-run operation this is straightforward. In practice, orders come in via email, phone, fax, EDI, web portals. Each channel has its own quirks, and someone has to make sure the data ends up in the system correctly.
Credit check. Before you commit to fulfilling an order, you need to know the customer can pay for it. SAP runs credit checks automatically against configured limits. If a customer has exceeded their credit limit, the order gets blocked until someone with the right authority unblocks it. I have seen entire warehouses full of goods sitting there because a credit hold was never cleared.
Availability check. Do you actually have the stuff to ship? SAP checks stock levels across plants and storage locations. If you do not have enough, the system can suggest alternative sources or flag the order for backordering. This is where supply chain and sales collide — sales promised a date, warehouse says it is not possible.
Picking and packing. The warehouse gets a picking instruction, usually generated automatically from the order. Workers go to specific locations, grab the right items, and stage them for shipment. This sounds simple until you have a warehouse with thousands of SKUs and the picking list is wrong.
Shipping and goods issue. The goods leave the building. In SAP terms, this is the “goods issue” — the moment inventory is no longer yours. It triggers an accounting entry. The stock value drops, and a cost of goods sold entry appears somewhere in the general ledger.
Billing. You send the invoice. In SAP this is typically a billing document generated from the delivery. The invoice goes out, and simultaneously an accounting entry is created: accounts receivable goes up, revenue goes up. This is the moment the order becomes a financial transaction.
Payment collection. The customer pays. Or does not. This is where OTC meets collections, and it is often the part companies are worst at. You can have a perfect order-to-delivery process and still bleed cash because nobody is following up on overdue invoices.
Payment application. The money arrives. Someone — or some system — matches it to the right invoice, the right customer, the right order. Get this wrong and your accounts receivable ledger is a mess, and nobody wants to live in a mess of that size.
Where the Pain Points Are
I have seen OTC processes break in a handful of recurring ways:
Manual data entry. If someone is typing order details from an email into SAP, something is going to go wrong. Typos, missing fields, wrong customer numbers. The companies that do this well have some form of automation — EDI, web portals, integration with the customer’s own system.
Disconnected systems. Sales uses one tool. Warehouse uses another. Finance uses SAP. When systems do not talk to each other, information gets lost in the gaps. An order might be confirmed in the CRM but never make it into SAP. A shipment might leave the warehouse but the invoice never gets generated because the delivery confirmation was stuck in an email inbox.
Poor credit management. I have seen companies ship goods worth six figures to customers who had not paid their last three invoices. The order went through because nobody had the discipline to enforce credit holds, or the credit limit was set too high, or the customer was a “strategic account” that got special treatment. Special treatment is how bad debt gets created.
Late or inaccurate invoicing. Send the invoice too late and you extend your payment cycle. Send it with the wrong details and the customer will not pay until it is corrected. Days Sales Outstanding (DSO) is the metric that captures this, and it is usually higher than management wants it to be.
No visibility. If you cannot answer the question “where is order #12345 right now?” in five seconds, you have a visibility problem. Customers call. Sales calls. Finance calls. Everyone wants to know the status, and if the answer requires three phone calls and an email chain, the process is broken.
How ERP Systems Help
SAP is the most common ERP for OTC, and for good reason. It covers the entire flow in a single system — order entry, inventory, shipping, billing, accounting. The integration between modules is the main selling point. An order entered in Sales and Distribution (SD) automatically updates inventory. A goods issue automatically creates the accounting entry. A billing document automatically posts to accounts receivable.
The alternative — stitching together best-of-breed point solutions — sounds attractive until you have to maintain the integrations. SAP is expensive, yes. But the cost of maintaining five different systems that do not talk to each other is often higher.
Automation within SAP is where the real gains come from. Credit checks that run automatically. Availability checks that consider multiple plants. Billing documents generated from deliveries without manual intervention. Payment proposals that match incoming cash to open invoices. These are not flashy features. They are the ones that make the difference between a process that works and a process that requires a team of people to keep it from falling apart.
Metrics That Matter
If you are going to measure OTC performance, focus on a few key numbers:
Order accuracy. What percentage of orders are entered correctly the first time? If this number is low, you have a data quality problem.
On-time delivery. What percentage of orders ship by the date promised to the customer? This is a warehouse and supply chain metric, but it reflects on the entire process.
Days Sales Outstanding (DSO). How many days does it take, on average, to collect payment after invoicing? Lower is better. This is the single most important financial metric in OTC.
Invoice accuracy. What percentage of invoices are correct the first time? Incorrect invoices delay payment and create work for the collections team.
First-pass yield. What percentage of orders flow through the entire process without any manual intervention or exception handling? This is the metric that tells you how well your automation is working.
A Note on Testing
One area that does not get enough attention is testing. OTC processes in SAP are typically highly customised — different document types, different pricing procedures, different output determination, different account determination. When you change anything, you need to test the impact.
I have seen companies spend hundreds of man-hours a year on manual regression testing of their OTC process. Every configuration change, every custom code modification, every upgrade requires someone to manually walk through order types, delivery types, billing types, and verify the results. It is tedious, it is error-prone, and it is a prime candidate for automation.
Automating OTC testing does not mean replacing human judgement. It means removing the repetitive verification steps so that people can focus on the exceptions that actually need attention.
The Bottom Line
OTC is not a single process. It is a chain of processes, and the strength of the chain is determined by its weakest link. You can have perfect order entry and terrible collections. You can have fast shipping and slow invoicing. You can have great automation for the first six steps and a spreadsheet for the last two.
The companies that do OTC well treat it as a single end-to-end flow and optimise the whole thing, not individual steps. They measure what matters. They automate what is repetitive. And they keep an eye on the links that tend to break — credit holds, invoice accuracy, payment application.