Order to Cash Process Flow

Welcome back. In the last video, I showed you lead to quote. In this video, we're going to pick up where we left off in that video and show you the entirety of the order to cash process flow. So let's take a look at a chart that illustrates how that looks.

Okay, so here we see we have a customer who wants to buy something. Right? And in lead to quote, we got the customer up to that point and now we have that customer who wants to buy paper. Let's just say this is company ABC and they want to buy 50 reams of paper from Dunder Mifflin, our organization.

Now, the order to cash process flow can be patterned several different ways. But I'd like to cover some of the more common patterns for that process flow. And the most common is: a sales order is made, which is then fulfilled and invoice goes to the customer, and then a payment is made. Now, these are all records in netsuite. But what do these things actually mean?

Well, first off, a sales order is a record of a commitment from a customer to buy goods or services. From that point, it goes on to a fulfillment. So there's a record that the goods have been shipped or the services have been delivered. And then an invoice is generated which is a record that money is owed for the value of those goods or services. And lastly, a record is made of the money that was received and it closes out any open invoices.

So in this example, we have ABC company puts in a request to buy 50 reams of paper. That generates a sales order. They're committing to buying those things. At that point, 50 reams of paper are taken off the shelves in Dunder Mifflin, they're packaged up, and they're shipped out to ABC company. That is the - you'll often hear - pick, pack, and ship aspect of fulfillment. At that point, an invoice is sent to ABC Company to pay for that paper. The invoice is received by ABC company, and they send payment back to Dunder Mifflin. That ends the transaction, and that's the full order to cash process flow.

So again, that's one of the most common. That's very common especially for business to business interactions. And again, not necessarily the only way to do this.

So let's take a look at another example. Let's say that ABC company desperately needs paper and they call up Dunder Mifflin and say, "I need to buy paper and get it here right now." Okay, so the sales representative is not necessarily going to say, "Well just send us in a purchase request." They're going to say, "Okay good, let's do this transaction now." They're going to take all their information, they're going to get the credit card information from ABC company, and they're going to get that credit card authorized. So they're going to have all that transaction data, and then they turn it over to the warehouse. So a sales order is made, then it goes over to fulfillment, same cycle, right? It goes through reams off the shelves, shipped out to ABC company. However, at this point, no invoice needs to be sent because credit card information was already given to the sales rep. We don't need to send them an invoice telling them to pay for something that they've already basically paid for. So at this point, we now have the payment occur and the terminology for that is, instead of an authorization on the credit card, it's now called capturing the credit card. That's the moment where the payment actually changes hands from ABC company to Dunder Mifflin and goes straight to the cash sale. So that's another way that that can occur, and that's another pattern for this order to cash process flow.

Now, let's take a look at another common example. Let's say someone comes into Dunder Mifflin. Let's say there's a little shop at the front that allows people to show up, purchase the paper, and walk away with the paper right there. That's more like a retail store or brick and mortar. And in that case, there's no sales order being generated. It's not like there's going to be some fulfillment process. They're taking the paper right from you, and they're leaving with it. And you're not going to send them an invoice. They're simply paying on the spot. So in that case, it goes straight from a customer who wants to buy something all the way straight to cash sale. It skips all three other steps. And again, that's a very common way of transacting business. There are many other ways that you can pattern this. For example, if you're delivering services, you might entirely skip the fulfillment step because you're simply delivering a service. There's no warehouse or delivery of goods occurring. These are just some of the common ones, and basically an overview so that you can think with how this works, and you can understand that entire line of the order to cash process flow.

So that's it for the order to cash process flow. In the next video, I'm going to be actually walking you through an example in netsuite. So you can see how does this process flow look from start to finish in netsuite. So I'll see you there.

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