Get expert advice on every topic you need as a small business owner, from the ideation stage to your eventual exit. Our articles, quick tips, infographics and how-to guides can offer entrepreneurs the most up-to-date information they need to flourish.

Subscribe to our blog

Optimize your small business order-to-cash cycle in 4 simple steps

Posted by Grace Townsley

July 28, 2023    |     6-minute read (1023 words)

As a small business owner, you know maintaining a steady and predictable cash flow is crucial to the stability and success of your company. And yet, there’s a critical cash flow factor many businesses fail to optimize: The order-to-cash (O2C) cycle. 

The order-to-cash cycle refers to the processes and paperwork involved in fulfilling customer purchases, receiving payments, and recording those transactions. The O2C begins when the order comes in and ends when you record the income from that transaction. 

While every business’ order-to-cash cycle can look a little different, the O2C process typically includes a few key stages, such as: 

  • Order processing
  • Inventory management
  • Invoicing
  • Billing
  • Payment collection
  • Accounts receivable management

Each step in the order-to-cash process is interconnected — and most steps can’t be completed concurrently. That means your business must maintain an optimized O2C process at all times, or risk a cash flow disruption. 

What are the benefits of optimizing your invoice-to-cash process?

Streamlining and enhancing the efficiency of your O2C process can significantly improve your business operations and financial health because a short and efficient O2C cycle accelerates your cash flow. 

The longer and more complex your O2C process, the more time your small business will waste waiting for payment and processing. But by reducing the time it takes to collect and process payments, you can keep a steady flow of funding running through your company — and better protect your business from liquidity complications. 

In fact, in a study by IBM, companies that optimized the performance of their revenue cycle increased their efficiency by as much as 80%. According to IBM’s data review, with optimized O2C processes, companies could complete common processes like managing sales orders and invoicing customers with up to three fewer full-time employees per billion in revenue. That adds up to significant savings over the lifetime of the company! 

Another benefit of a streamlined O2C process is enhanced customer satisfaction. When you have an easy and error-free payment process, it enables your customers to spend more time enjoying their purchase and less time paying bills or correcting billing mistakes. 

How can your small business improve its payment process? Start with these four order-to-cash best practices: 

1. Streamline your invoicing and billing

The first place you can begin tightening up your order-to-cash process is at the very beginning — the moment you accept an order and send the bill. 

Efficient and timely invoicing not only gives your customers a streamlined ordering experience, but can also accelerate your incoming revenue. Plus, it can reduce the risk of missed invoices and payment disputes. 

To expedite your billing process, consider: 

Automating your invoices. 

Manual invoice generation is time-consuming and can be prone to errors. But an automated accounting and billing system delivers instant and consistent invoices, 24 hours a day. 

Standardizing your invoices. 

If you’re creating custom invoices for each customer, you may be adding unnecessary time to your O2C cycle. Creating a consistent format for each bill allows for faster preparation and a simple billing process. 

Enabling online billing and autopayments.

If your business offers recurring services or auto-shipped products, consider offering an auto-payment option that bills customers on a set day or time. Not only does auto-billing reduce paperwork and manual effort, but your customers are also less likely to miss or delay a payment when the cost is automatically charged to their payment method. 

By accelerating and automating your initial invoicing and billing process, your business can enjoy faster payments and fewer missed payments without adding more tasks to your back office to-do list. 

2. Offer clear and concise payment terms

Well-defined payment terms build trust with your customers — and reduce the risk of payment disputes and missed payments. And while phrases like “Net 30” and “Due on receipt” are common business terms used throughout the invoice-to-cash process, not all customers may be familiar with these billing methods. 

Instead of using business jargon that’s prone to misinterpretation, consider clearly outlining the date you expect payment, the date a late penalty will be added, and the early payment incentive you offer (if any). Then follow up on the invoice periodically — before it’s due and after — to ensure timely payment. 

3. Implement a robust collections process

Collections is one of the most crucial steps in an optimized order-to-cash cycle. And the more automated your collections process, the more revenue you’re likely to collect. 

The first step in improving your collections process is to clearly outline your payment terms before the customer places an order. Set payment expectations from the beginning, on your ordering page and in your sales materials. 

Once your customer places an order, send polite payment reminders in the days leading up to the payment due date, and the days following. A simple reminder is often all that’s necessary to receive payment. But if the bill is overdue, more firm reminders may be necessary. 

If the customer continues to delay their payment, consider following up by phone and offering a simple payment plan. Collecting some payment is better than an unaddressed invoice. If necessary, you may also engage the services of a collections agency to recover your overdue payment. 

4. Leverage technology to further optimize your O2C process

In IBM’s study of optimized O2C processes, the firm found that using AI and other payment technologies can save companies an average of 22% per invoice during processing. These savings come from the reduced labor needed to bill, collect payment and process income, and from the reduction in errors, late payments and missed bills. 

One way to leverage technology in your invoice-to-cash process is to use an integrated accounting system that brings your bookkeeping, invoicing and inventory management all into one system. Integrated systems like these enable a seamless flow of data between your ordering platform, your bookkeeping system, and your billing process — eliminating manual entry and reducing errors. 

Key takeaway

Streamlining your O2C process takes planning and foresight. But with a little optimization at each stage of the process, your small business can enjoy compounding returns as your invoices are paid more quickly, more consistently and with less effort on your part. 


Grace Townsley
Grace Townsley

As a professional copywriter in the finance and B2B space, Grace Townsley offers small business leaders big insights—one precisely chosen word at a time. Let's connect!

Learn how we can put more time back in your day.