💰 F&A Process Guide

Order-to-Cash (OTC) — Complete Guide

Order-to-Cash (OTC) is the revenue cycle — it starts when a customer places an order and ends when you collect and apply their payment. Optimising OTC directly improves cash flow, reduces DSO, and enhances customer satisfaction.

▶ Start: OTC Cycle Overview

• 1️⃣ Customer Order Received → Credit Check
• 2️⃣ Order Confirmed → Goods/Service Delivered
• 3️⃣ Invoice Raised → Sent to Customer
• 4️⃣ Payment Due → Collections & Follow-up
• 5️⃣ Payment Received → Cash Application
• 6️⃣ AR Reconciliation → Period Close

🔷 Sales Order to Invoice

• Sales Order (SO): Customer’s confirmed purchase — includes items, quantity, price, delivery date, payment terms
• Delivery Note: Internal document authorising despatch from warehouse
• Invoice: Issued on delivery — must include GSTIN, HSN code, GST amount, PO reference, bank details
• E-Invoice: Mandatory in India for B2B supplies above ₹5 crore turnover — generated via IRP portal, carries IRN & QR code
• Revenue Recognition: Under Ind AS 115, recognise revenue only when performance obligation is satisfied — not just when invoice is raised
• In SAP: VA01 (Create SO) → VL01N (Delivery) → VF01 (Invoice)

🔷 Credit Management & Risk

• Credit Limit: Maximum outstanding balance allowed per customer — set based on financial health, payment history, industry risk
• Credit Score: Use CIBIL/CRIF data + internal scoring model (payment behaviour, order size, tenure)
• Credit Hold: Automatically block new orders if customer exceeds credit limit or has invoices >60 days overdue
• Credit Insurance: Insure receivables from large or risky customers — ECGC for export receivables
• Bad Debt Provision: Ind AS 109 requires Expected Credit Loss (ECL) provisioning based on aging and probability of default

🔷 Collections & Dunning Process

• Dunning: Automated payment reminders sent in escalating steps as invoice ages
• 📧 Dunning Level 1 (Day 1 overdue): Friendly reminder email with invoice copy
• 📧 Dunning Level 2 (Day 15): Firm reminder — request ETA for payment
• 📞 Dunning Level 3 (Day 30): Phone call + formal notice — escalate to senior management
• ⚖️ Dunning Level 4 (Day 60+): Legal notice — refer to collections agency or initiate legal proceedings
• Collections Dashboard: Track collector performance — calls made, promises obtained, amounts collected

🔷 Cash Application & Receipts

• Cash Application: Matching incoming payments (bank receipts) to specific open invoices in the AR ledger
• Remittance Advice: Customer sends this document showing which invoices they are paying — use it to allocate
• Unapplied Cash: Payment received but not matched to any invoice — investigate within 5 business days
• Deductions & Short Payments: Customer deducts discounts, penalties, or disputes — must be approved or recovered
• Automation: AI-based cash application tools (HighRadius, YayPay) can auto-match >90% of receipts

✅ End: AR Reconciliation & Aging

• AR Aging Report: Lists all open invoices by age — 0–30, 31–60, 61–90, 90+ days
• Days Sales Outstanding (DSO): DSO = (AR ÷ Revenue) × 365 — industry benchmark is 30–45 days
• Customer Reconciliation: Match your AR ledger to customer’s AP ledger — resolve disputes before month-end
• Write-off Policy: Define threshold and approval hierarchy for writing off irrecoverable debts
• GSTR-1 Reconciliation: All B2B invoices in AR must match GSTR-1 filings — critical for GST compliance