Where’s the Finance in Today’s Order to Cash Solutions?

The Order to Cash (“O2C”) space is one that is not well covered by analyst, research firms, and others. Maybe because much of what O2C is about is block and tackle functions like getting invoices out to customers, and taking payments and applying those payments and remittance information back to ERP systems to update account information.  Exciting, no, important, yes.

So who are some vendors that play here?

The O2C space involves 7 steps.


Many of the vendors here got their start in the EIPP days, remember them? Electronic Invoice Presentment and Payment (EIPP) enables businesses to exchange documents such as invoices, purchase orders and credit notes electronically rather than on paper.

Vendors such as Billtrust, HighRadius Corporation, Bill.com, Cedar Document Technologies and others play here, all touting various forms of integration and end to end cash application, the ability to handle multiple remittance formats, and even the use of Artificial Intelligence for aggregating remittance details.

Some got their start in industries where deductions are highest, like the consumer product goods space, where deductions and cash application are seen as most pertinent. Cedar Document Technologies was founded in the 70s and wrote the first tool to take mainframe data to printable image but really got their lift-off the back of  Adobe back in 1993 taking mainframe legacy print data to PDF.  In 2014, Billtrust’s invoice-to-cash solution processed over $250 billion in receivables for leading companies including Kraft Foods, Under Armour, Estes Express and CDW.

Despite the different starts, there are also differences between the vendors around many areas. For example, for cash application, how well do they capture data from EDI, email or the Web?  For payments, can they facilitate online credit card payments as well as ACH and echeck?  And how well do they do bank integration?

Why is O2C so Important?

Quite simply, DSO or days sales outstanding. If you want to reduce DSO, you automate, you apply business rules, you get your processes up to a point where you can taut a 90% or 95% cash application success story.  Just as in Purchase to Pay the focus is on invoice approval, here the focus is to reduce DSO for clients and accelerate time to present invoice and apply cash.

So where is the Finance Opportunity?

When we talk about invoice finance, much of the industry talk is around payable finance stemming from approved invoices. You can get access to early pay as long as the buyer has approved the invoice.  That early pay can take many forms (dynamic discounting, supply chain finance or reverse factoring, C2FO auctions, network offerings from purchase to pay vendors, etc.).  But the invoice has to be approved.

But O2C vendors are dealing with invoices that have yet to be submitted to customers. Most likely the goods have been shipped and or services rendered. And the customer needs to be billed.  Billing in of itself requires tremendous automation in the form of collection of billing information, receipt of ‘job feed’ (i.e., pick ticket, time card, billing trigger) which will generate an invoice and access of customer master file for billing parameters and also determination of appropriate sales tax/VAT.  Most likely an ERP system handles this.

But when that invoice is ready to go, it represents money to the supplier. And right now, O2C vendors have not played in this area.  Why?   Well, I think there are several reasons:

  1. Early ventures did not bear fruit
  2. The focus has been both moving their solutions to the cloud and providing more intelligence around their offerings
  3. Acquisitions, particularly in the cash application space
  4. It’s hard (yes, it really is). The challenge is that the O2C network is not connected to the account debtor, ie the supplier’s customer. They have no visibility into the A/P system of the obligor. And of course what funders are keenly concerned about when financing invoices is dilution.
  5. Finally, while their buying “client” is typically a Controller, O2C vendors do potentially have access to treasurers, but they just don’t speak the language of finance.

Are there big opportunities in this space? Some of these vendors send invoices in the hundreds of billions annually.  Think about combining data science, and new decision engines to help drive B2B lending here where underwriting can be 85% or 90% digital.  It can be done, now we just have to wake the O2C vendors up about the opportunity.

Jason and I see lots of opportunities here, and the changing dynamics of how credit is formed, underwritten and injected into supply chains is becoming pretty impressive compared to traditional methods. If you like to reach out to us, you can contact me at dgustin(at)globalbanking.com

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