Inefficient order-to-cash processes cost billions in liquidity

Many companies are missing out on opportunities in terms of liquidity, costs and supply chain collaboration due to inefficiencies in their order-to-cash (O2C) process. If the total turnover of SMEs in the Netherlands would be paid five days earlier, for example, it would free up €14 billion in liquidity. This is according to the ‘Order to Cash Monitor’ by the Supply Chain Finance Lectorate of Windesheim University of Applied Sciences and Diesis, a vendor of automation solutions for O2C processes.

The order-to-cash process covers all steps from the moment a customer places an order to final payment. This means it is not only about the speed at which orders are processed and delivered, but also about the accuracy of delivery and invoicing, and the time taken to collect payments. O2C is also a crucial link in the supply chain, as it has a direct impact on customer-supplier relationships and the financial health of all links in the chain. So says Christiaan de Goeij, Senior Researcher Supply Chain Finance at Windesheim University of Applied Sciences and project leader of the study.

For the Order to Cash Monitor, 254 companies were surveyed. The results show that the average lead time for payment in the Netherlands is 51 days. In the case of disputes over invoices, this time increases to 66 days. Paying a few days late may not seem so problematic at first glance, but it can make the difference between being able to pay rent, salaries or suppliers on time or not. It can also prevent companies from investing in replacements on time, such as when production equipment breaks down.

Weekly vs monthly invoicing

Delays that limit the liquidity of companies, resulting in them becoming more dependent on external financing, occur in many places in the process. Often, they happen in places that receive less attention. For instance, buyers quite often request to be invoiced on a weekly or monthly basis. Only 31.5% of suppliers invoice on a per-order basis. Most suppliers comply with the request and invoice for all the orders just once a week or month. Although some suppliers see this as being efficient, it actually means they lose an average of three-and-a-half days (when invoicing weekly) or 15 days (when invoicing monthly) in the O2C process. This is especially beneficial for the buyer, who can pay later.

Since COVID-19, however, a growing number of suppliers are asking customers to pay the entire invoice (16.3% of all companies) or part of it (39.8%) before delivery. Reducing the O2C lead time requires companies to organize their processes, such as invoicing and payments, more tightly and automate them where necessary.

Individual parts

Many companies still view their order-to-cash process as a collection of individual parts rather than a whole. This creates many inefficiencies. For example, problems in order processing can lead to errors in delivery and invoicing, resulting in payment delays. Moreover, the disagreements that arise from these errors are a major frustration factor with customers. Errors and delays can be reduced by the Sales, Operations and Finance departments better coordinating their work in different parts of the process.

Another key finding from the monitor is the low adoption of e-invoicing, especially among SMEs. Only 15.3% of Dutch companies use it; among SMEs, the percentage is just 9.9%. E-invoicing enables companies to send invoices faster and shorten approval times at customers. And since the invoice processing is less error-prone, it can also reduce the number of conflicts.

Moreover, the pressure to implement e-invoicing is increasing because the EU, through the ViDA directive, requires countries to introduce e-invoicing for B2B transactions from July 2030. This obligation will be introduced even sooner in some countries, such as Germany (2025) and Belgium and France (2026). Companies that switch to e-invoicing earlier will be better prepared for the changes and able to respond faster to new market developments, according to the monitor.

Checking creditworthiness

A striking aspect within the buyer-supplier dynamic is that only 4.3% of companies check the creditworthiness of new customers when accepting an order. As a result, many companies lack valuable insight into the likelihood of a customer paying late, or even not at all. This is all the more remarkable as 13.7% of companies regularly have to make payment arrangements with customers who do not fulfil their obligations on time.

When it comes to payment reminders, 43.7% of companies send automatic ones. Only 14.9% say they also deploy a personalized approach. An automated workflow, complemented by personal contact when needed, provides a customer-centric approach that allows suppliers to increase both payment security and customer satisfaction.

The monitor also shows that many companies lack sufficient insight into their O2C processes. Only 7% of companies measure the total lead time of their process. Only 3% monitor the working capital trends. This means that they do not regularly track the dynamics of accounts receivable, accounts payable and inventories throughout the year, but rather mostly limit themselves to an annual snapshot, which can paint a distorted picture. In contrast, monitoring the working capital situation throughout the year gives a better view of cash flow dynamics and allows inefficiencies to be addressed earlier.

Cross-departmental collaboration is crucial

Many companies are strongly focused on streamlining supply and production processes, but pay little attention to optimizing their O2C processes. Yet there are still significant cost and liquidity benefits to be gained in this area. The O2C process spans multiple departments, from Sales and Operations to Finance, and often no one has a clear, cross-departmental responsibility for it. The lack of a single point of contact makes optimizing the process more difficult.

By collaborating and focusing optimization efforts on the entire O2C journey, companies can not only reduce the processing time for orders and invoices, but can also improve customer relations through fewer conflict situations and faster payments. For SMEs in particular, there is also a lot of potential for achieving liquidity benefits, which can create financial leeway in times when it is difficult to obtain financing from banks. If the total turnover of SMEs in the Netherlands would be paid five days earlier, it would free up over €14 billion in liquidity for that segment of businesses.

To complement the survey insights, the Lectorate of Supply Chain Finance plans to conduct case studies at companies, identifying bottlenecks per process step by taking measurements and holding interviews with multiple departments. This is an opportunity for companies to take a closer look at their own process. In addition, the Order to Cash Monitor will be repeated annually so that trends and developments in O2C processes in the Netherlands can be mapped.