Finance and Accounting

Order to Cash (O2C) – Process Flow

The O2C process is affected by all aspects of your business. Companies should strive to optimise the order-to-cash cycle for various reasons. For starters, O2C activities impact operations throughout the organisation, including supply chain management, inventory management, and labour. Bottlenecks in one area can cause headaches for units that are completely separate. Secondly, the invoicing and accounts receivable functions carried out during O2C determine the company’s cash inflows. Delays in collection can complicate accounts payable, payroll, potential acquisitions, and other issues related to liquidity.

Listed below are the eight major steps that make up the order-to-cash process

Order to Cash (O2C) – Process

1. Order Management

The first step of the O2C process is order management, and it begins as soon as the customer places an order. Whether it’s through an ecommerce platform on your site, an email to the sales department, or even notifying a sales person, you are responsible for the order management actions as soon as the purchase is confirmed. The order management system must be automated, and instant notifications should kick off a series of actions in other departments that will keep every unit on top of the order. A recent study found that companies who adopted best-in-class O2C practices were 81 percent more effective at order management than those who had not

2. Credit Management

Diligent credit management on the front end of O2C minimises issues that could occur as you reach the end of the process. In cases where credit is applicable, every first-time customer, when an order is placed, should automatically be sent through a credit approval process. Automated software can take care of straight forward approvals or denials, and finance personnel can be notified for cases that require a more thorough review. The order management software should send returning customers who have current credit approval directly through to the fulfilment stage, We at Prologiq, make sure that all these checks are put in place to deliver a great customer experience

3. Order Fulfilment

Automated inventory management software is an important component of the fulfilment process. Inventory counts should be updated on the sales side in real time in order to avoid accepting orders that cannot be completed. In the event that an out-of-stock order does make it to fulfilment, it must be flagged immediately. Then you need to alert the customer and cancel the order, which can help avoid billing issues

4. Order Shipping

The success of order shipping depends on product logistics, which is why the shipping portion of the O2C process needs to be regularly audited to ensure it meets high performance standards. Data from the order and fulfilment management functions must be immediately updated for the shipping team so they can plan shipments around carrier pickup schedules and get orders to customers on time

5. Customer Invoicing

As is the case with anything related to credit management and accounts receivable, invoicing delays and inaccuracies can snowball and lead to cash problems that disrupt the entire organisation. When accurate invoices are sent out on a reliable timetable, staff in Finance can effectively forecast cash inflows and plan for expenses accordingly. Data points, such as order specifics, costs, credit terms, order date, and shipping date, need to be input in the invoicing system so that invoices can be automated with the correct information and sent without delay

6. Accounts Receivable

Automated accounting systems need to flag outstanding invoices at pre-set times before they are overdue, and accounts receivable representatives should review these invoices to determine if there are any obvious errors that would result in delayed payment. Our team at Prologiq understands the impact of AR on cash flows hence we review the data from the ordering system, find out where the information breakdown occurred, and send out a revised invoice immediately

7. Payment Collections

The first defence against payment collection backlogs is to have your team document payments received within a specific timeframe. Organisations encounter issues when payments delivered by customers have not been processed in the ordering system and accounts still show as unpaid. This not only causes friction when customers are asked for payment that has already been remitted but it also leads to inaccurate cash estimates, which causes finance teams to incorrectly forecast higher cash deficits

8. Reporting and Data Management

AI programs today, can track performance data across every stage of the order-to-cash process. By monitoring and analysing this data, company leaders can see how the overall flow of their O2C process affects everything else in the organisation. This includes the relationship with customers, the length of the sales cycle, the onboarding and customer service functions, and so on. Successful management and optimisation of the order-to-cash cycle helps businesses efficiently deliver value to their customers and receive timely payment for their services. And Prologic advocates to their customers the use of technology for O2C process to enhance and elevate the customer experience.

Procure to Pay(P2P) – Process Flow

The procure to pay process is how an organization procures the goods and services it needs to do business. Also known as P2P, procure-to-pay is the process of requisitioning, purchasing, receiving, paying for, and accounting for goods and services, covering the entire process from point of order right through to payment. We at Prologiq understand the importance of executing the steps in a procure-to-pay process in a strict order to create a great customer experience.

Procure to Pay(P2P) – Process

1. Identify Needs

The first step of a procure-to-pay process is to determine and define the business requirements with the help of cross-functional stakeholders. Once a valid need is identified, procurement teams sketch out high-level specifications for goods/services and terms of reference (TOR) for services, and statements of work (SOW)

2. Create Requisitions

After finalizing the specifications/TOR/SOW, a formal purchase requisition is created. A requester submits the filled-out purchase requisition form after ensuring that all necessary administrative requirements are met. Requisitions can be created for any type of procurement from standard purchases to subcontracts and consignments

3. Purchase Requisition Approval

Submitted purchase requisitions are then reviewed by department heads or procurement officers. Approvers can either approve or reject a purchase requisition after evaluating the need, verifying the available budget, and validating the purchase requisition form. Incomplete purchase requisitions are rejected back to the initiator for correction and resubmission. We at Prologiq, put in checks at this step to avoid re-work.

4. Create a PO/Spot Buy

If the requested goods/products have characteristics such as unmanaged category buys, one-time unique purchases, or low-value commodities, then a spot buy can be performed. Else, purchase orders are created from approved purchase requisitions

5. Purchase Order Approval

Purchase orders are now sent through an approval loop to ensure the legitimacy and accuracy of specifications. Approved purchase orders are then dispatched to vendors (via system). When an officer approves a purchase order, a legally binding contract is activated

6. Goods Receipt

Once the supplier delivers the promised goods/services, the buyer inspects the delivered products or services to ensure that it complies with the contract terms. The goods receipt is then approved or rejected based on the standards specified in the purchasing contract or purchase order

7. Supplier Performance

Based on the data obtained from the previous step, the supplier performance is evaluated on a number of factors like quality, on-time delivery, service, contract compliance, responsiveness, and Total Cost of Ownership (TCO). Non-performance is flagged in existing rosters and information systems for future reference

8. Reporting and Data Management

Once a goods receipt is approved, a three-way match between the purchase order, the vendor invoice, and the goods receipt is performed. If there are no discrepancies found, the invoice is approved and forwarded to the finance team for payment disbursement. In the case of inaccuracies, the invoice is rejected back to the vendor with a reason for rejection

9. Vendor Payment

Upon receiving an approved invoice, the finance team will process payments according to the contract terms. Any contract changes or reviews of liquidated financial security will be taken into account. A payment made to a supplier will fall into one of the following five types: advance, partial, progress or installment, final, and holdback/retention payments

Record to Report(R2R) – Process Flow

The record-to-report process is an end-to-end process that includes, general accounting, sub-ledger accounting, tax compliance, regulatory compliance, ﬁnancial analysis, and reporting and interacts with the functions of budgeting and forecasting and internal and external audit. It includes all subsequent activities after recording the financial transactions related to the financial close consolidation, through the external reporting of the company’s financial results. The R2R process ends with the completion of account reconciliations of balances generated during the financial close process. The four core steps in the record to report process are:

Record to Report(R2R) – Process

1. General Ledger Accounting

The R2R process begins when recording occurs in a general ledger on management GAAP and statutory accounting basis. Recording transactions includes documenting revenues (by invoices or sales receipts), and entering purchases (in the account payable account) and expenditures (in the check register). This step sometimes also involves high-level accounting tasks, such as recording sales orders, tracking prospective customers, and projecting sales opportunities and cash flow. Recording the transactions above is a tedious process and automating the accounting system, frees accountants from these repetitive tasks by calculating and summarizing hundreds of individual transactions and generating reports to satisfy a variety of stakeholders

2. The Closing Cycle

Once the processing cycle is complete, the next cycle is to close the books. Closing of management GAAP books is done following the common R2R Organizational Global Closing Calendar along with the closing of statutory accounting books. Close Cycle is the elapsed time for posting transactions to the general ledger and financial reporting systems through locking down the general ledger

3. The Consolidation Cycle

The consolidation cycle is the next pivotal step in the Record to Report process which allows companies to perform eliminations, reconcile intercompany balances and produce the data required to generate financial statement. This cycle must address both internal and external reporting needs. Consolidation and elimination include completion of within and outside own business eliminations, intercompany reconciliations, and other post-close activities leading to final financial statements at the consolidated segment level

4. Reporting Cycle

The reporting cycle is the formal process of data gathering, assimilating, performing analysis, and distributing the results. The key to this process is the flow of the information necessary to provide accuracy in an efficient manner. This would include information from all source systems and sometimes requires a support process to accomplish it. Reporting cycle includes submission of financial data and commentary to the Organization’s Corporate Headquarters, external reporting, and government reporting.
The accounting system records the economic data about business activities and events, the next logical step is to prepare the business reports and provide them to the stakeholders according to their informational needs. The double-entry system enables accountants to prepare some standard reports like trial balance, profit and loss account, and balance sheet. Accounting reports are based on “Generally Accepted Accounting Principles” and these reports are powerful tools to help the business owner, accountant, banker, or investor analyze the results of their operations

Financial Planning & Analysis (FP&A) – Process Flow

Financial Planning & Analysis (FP&A) – Key Tasks

FP&A combines the financial close process with budgeting, forecasting, reporting and analytics to predict what investments, resource allocations and other decisions will best achieve a company’s objectives. While the concept has been around for decades, recent automations have enabled FP&A teams to provide company leaders with real-time information and in-depth analysis to align business goals and plans across an organization. The need of financial planning and analysis is always there no matter what state the economy is in. During times of growth, FP&A is essential for planning business objectives. During leaner or difficult times, FP&A helps determine what course corrections and adjustments will keep the company on track and in optimal fiscal health. That’s why it is also referred as the backbone of the modern finance department. The key tasks in FP&A are:

Evaluating whether the company’s current assets and investments are the best use of the company’s excess working capital, by looking at return on investment (ROI) and comparisons with other ways the company might utilize its cash flow (e.g., other possible investments, increased stock dividends, etc.)
Gauging the company’s overall financial health, primarily by using key financial ratios such as the debt to equity ratio, current ratio, and interest coverage ratio
Determining which of the company’s products or product lines generate the largest portion of its net profit
Identifying which products have the highest profit margin (and which have the lowest) – It is a separate inquiry from the one listed above, as product(s) that carry the highest profit margin may not necessarily be those that generate the greatest amount of total
Evaluating the cost-efficiency of each department of the company, in light of what percentage of the company’s financial resources each department consumes
Working with individual departments to prepare budgets and consolidate them into one overall corporate budget
Preparing internal reports for executive leadership and supporting their decision making
Creating, updating, and maintaining financial models and detailed forecasts of the company’s future operations
Comparing historical results against budgets and forecasts, and performing variance analysis to explain differences in performance
Considering opportunities for the company to expand or grow. Mapping out growth plans, including capital expenditures and investments. Generating 3-5 years financial forecasts