The most common challenge that every business faces is increasing its customer base. We all know that in today’s era, most of our customers are concerned about lifetime values, innovations, trendy offers, social recognition, and progressive growth. Such challenges when accomplished mark a great milestone for many cross-functional teams that go through such complex processes from acquiring customers to retaining them. All these might seem like the tip of the iceberg, but in fact, what lies in-depth in these processes is even more complex.
Quote-to-cash Vs Order-to-cash: Steps Involved
Configuration of the right products/services according to customer needs, pricing quotation, error-free quotes, contract creation, contract negotiations, contract execution, order fulfillment, billing, revenue recognition, and renewal process for customer retention, are just a few of the roles that are covered under Quote-to-Cash (Q2C) and Order-to-cash (O2C). Despite a few similarities, there is a fine line between these two processes.
Quote-to-Cash encompasses a larger set of business processes whereas Order-to-cash is a subset of Quote-to-cash processes. In simpler terms, Quote-to-cash includes the customer’s intent to purchase through the realization of revenue. Q2C also includes a few more components like configure, price, quote processes (CPQ), and a whole contract lifecycle management that an Order-to-cash cycle does not include.
The Key Differences: Quote-to-cash Vs Order-to-cash
Sometimes a scenario may arrive that an organization loses its mark on attending a significant value of these processes. Such easy wins can help to capture lots of uncovered productivity through these processes.
- According to the McKinsey survey report, it was observed that there were less than 5 days in the gap to best-in-class days of sales outstanding for invoice-to-cash after integrating order-to-cash (O2C).
- And by unlocking Quote-to-cash (Q2C) it was seen that the EBITDA was impacted by 25-30 $ million in revenue leakage, 3-4 $ million in working capital optimization, 5-8 $ million in productivity, 33-42 $ million in financial impact.
Let’s move deeper into the process of O2C and Q2C and find out what the differences are and which one is suitable for your organization. Here, beginning with the O2C process
1) Managing Contracts:
When a customer accepts a quotation and decides to go further for the products/services, at the moment the legal processes from both ends begin. The sales team starts to create, negotiate, and comply with all the defined legal terms and clauses. But, the creation process, negotiation undertaking, or execution does not comply with the O2C process.
2) Fulfilling an order and its Invoicing Procedure:
When a contract gets finalized from both ends, it will be performed as scheduled and an invoice note will be sent to the customer under this process.
3) Payment collections and Revenue Recognition:
In an ongoing scenario it is seen that many times the payments get delayed and reach an overdue status where the accounts are given red flags. For avoiding such, the O2C cash cycle helps to bring the best possible efforts and get the collections on time. Once this is done, the payments are recorded and revenue is recognized in the accounting books.
4) Get Analysis And Reporting:
Here comes the last stage of the O2C cycle as here the data has been collected, analyzed, and determined regarding the efficiencies incurred and inefficiencies to bring improvements.
However, it was analyzed that though O2C is helpful in an organization for reducing complexities it still doesn’t include a few key components such as product/service configuration, setting pricing structure for sending a quotation, and other elements of contract lifecycle management. Because of these critical elements, order-to-cash vs quote-to-cash both play a vital role in revenue generation.
Moving on, when we take a deeper insight into the quote-to-cash process, its initial steps are configured, price, and quote which is also termed QPC.
- Configure: Based on an understanding of the customer requirements, this step identifies what kind of product/service will be the best fit for them. It helps to ensure the right decision is made and an accurate quote is developed with an error-free configuration.
- Price: With an inclusive package of price, discounts, promotions, packages, and bundles, this critical step is determined. With the automation of QPC, the sales team or the marketing team can suggest their feedback on various pricing strategies, promotion schemes, and trending discounts the team can optimize their pricing more efficiently.
- Quote: An organization may require many different quotations for different purposes. Q2C helps to analyze a quote and suggest an ideal potential/performance that helps to manage the terms and conditions of a finalized deal. Such error-free quotation helps to provide the best possible solution and the different needs of different customers.
Identification of sales opportunities, automating the sales cycle, managing contracts more effectively, reducing errors, faster proposal generation, and avoiding delays, are just a few richer solutions that are provided by including CPQ in the O2C process.
What approaches do Aarav Solutions follow for optimizing these two processes?
Anticipating a customer’s needs and helping you to cater to those needs with utmost fulfillment, innovation, and retention is our goal. Being a customer-centric organization, we pay detailed attention to a steep learning curve for our customers and their stakeholders as well. Drive into a thorough investigation with our experienced team leaders and innovative minds and realize the potential value embedded in your business by redesigning O2C or Q2C process. Anticipate yourself and find through your eyes how significant improvements can come, the customer experience can improve, impactful top-line growth can achieve, and potentially eradicate the coming cost and time measures with such processes.
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