Order to Cash (O2C): Process Overview, Key Risks and Audit procedures

As companies strive to improve their financial performance, they must ensure that their order-to-cash (OTC) process is operating effectively. This critical process spans the entire sales cycle, from ordering to invoicing, and plays a vital role in the company's cash flow.

Ordering: The OTC process begins when a customer places an order. The order is then processed by the sales team, who verify customer information, product availability, and pricing. The order is then sent to the warehouse for fulfillment.

Picking and Shipping: Once the order is received, the warehouse team picks the products and packages them for shipping. The shipping team then ships the products to the customer.

Invoicing: After the products are shipped, the accounting team generates an invoice for the customer. The invoice includes the product details, pricing, and any applicable taxes or discounts.

Payment: Once the customer receives the invoice, they make a payment to the company. The payment is recorded by the accounting team and applied to the customer's account.

Key Risk Areas:

Sales Order Processing: Risk of errors or delays in processing sales orders which can result in incorrect shipments or invoicing.

Credit Risk Management: Risk of extending credit to customers who may not be able to pay or are in financial distress.

Pricing and Discounting: Risk of inaccurate pricing or excessive discounts that can impact the profitability of the company.

Billing and Invoicing: Risk of incorrect or delayed invoicing that can lead to disputes or delayed payments.

Cash Application: Risk of errors in applying payments received from customers to their outstanding balances.

Key Audit Procedures:

Sales Order Processing: Audit procedures can include testing the accuracy and completeness of sales order documentation, verifying the pricing and terms, and ensuring that proper controls are in place to prevent errors or delays.

Credit Risk Management: Audit procedures can include reviewing credit policies, assessing the creditworthiness of customers, and ensuring that proper controls are in place to manage credit risk.

Pricing and Discounting: Audit procedures can include testing the accuracy of pricing and discounts, reviewing pricing policies, and ensuring that proper controls are in place to prevent errors or excessive discounts.

Billing and Invoicing: Audit procedures can include reviewing invoice accuracy and completeness, verifying the invoicing process, and ensuring that proper controls are in place to prevent errors or delays.

Cash Application: Audit procedures can include testing the accuracy and completeness of cash receipts documentation, verifying the proper application of payments, and ensuring that proper controls are in place to prevent errors or misapplication of payments.

In addition to these audit procedures, internal auditors can also perform process walkthroughs, perform data analytics, and conduct interviews with process owners and stakeholders to gain a better understanding of the OTC process and identify areas of improvement. The audit procedures can then be customized based on the risks identified during the audit.

In conclusion, the OTC process is a critical part of a company's financial performance. By conducting internal audits and addressing key findings, companies can improve the efficiency and effectiveness of the process. Moreover, by embracing new technologies, companies can transform the OTC process and stay ahead of the competition.