SAP Order-to-Cash (OTC) Process – Detailed Explanation with Real-Time Example

[venkateshgolla]

Hello All,

In our internal team discussions, recently we have had many points on OTC process, wanted to summarise them here for further discussion.

Order-to-Cash (OTC) is a crucial process stream that integrates with other key streams such as Purchase-to-Pay (PTP) and Material Management (MM), and inventory, covering both master and transactional data.

This process acts as a bridge between customers, vendors, stock, and inventory, ensuring seamless transactions and efficient business operations.

Let's discuss the detailed steps here:

 OTC Process Steps:

1. Order Creation (Sales Order Entry)

   • A customer submits a purchase order (PO) or requests a quote.

   • The sales representative creates a Sales Order (SO) in SAP.

   • Customer credit checks are performed.

2. Order Processing (Sales Order Confirmation & Approval)

   • The system verifies the order details (pricing, quantity, discounts, taxes).

   • Sales Order is confirmed and approved for further processing.

3. Inventory Check & Fulfillment (Material Availability & Delivery Processing)

   • The system checks stock availability or initiates procurement (if out of stock).

   • A delivery document is created for the warehouse team to process.

4. Shipping & Delivery (Goods Issue & Tracking)

   • Goods are picked, packed, and shipped (for physical products).

   • For software licenses, digital keys or login credentials are generated and shared.

   • The system updates delivery status and tracking details are sent to the customer.

5. Invoicing (Billing Document Generation)

   • A billing document (invoice) is generated in SAP and sent to the customer.

   • Tax calculations and compliance checks are done automatically.

6. Payment Collection (Accounts Receivable Management)

   • The customer makes the payment via bank transfer, credit card, or online payment gateway.

   • The payment is recorded in the system, and accounts receivable is updated.

7. Accounting & Reporting (Revenue Recognition & Financial Reporting)

   • The finance team reconciles payments and records revenue in SAP.

   • Reports are generated for revenue forecasting and audits.

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Real-Time Example: Venkatesh Golla Software Solutions – SAP License Sales

Scenario: Selling 50 SAP BODS Licenses to AB Corp

1. Order Creation

   • AB Corp requests 50 SAP BODS licenses.

   • The sales team enters the order in SAP with price, quantity, and terms.

   • Customer credit check is performed.

2. Order Processing

   • The order is reviewed and approved.

   • System validates pricing and discounts.

3. Inventory Check & Fulfillment

   • SAP system verifies available license stock.

   • If needed, new licenses are procured from SAP.

4. Shipping & Delivery

   • The system generates license keys and activation instructions.

   • The digital licenses are sent via email with tracking confirmation.

5. Invoicing

   • An invoice is generated in SAP.

   • The invoice is emailed to AB Corp's finance department.

6. Payment Collection

   • AB Corp makes an NEFT transfer of ₹50,00,000 (example).

   • The finance team records the transaction.

7. Accounting & Reporting

   • Revenue is recorded, and financial reports are updated.

   • A report is generated for management to track sales performance.

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Why This Process Matters?

✅ Ensures smooth sales operations.
✅ Helps track payments and revenue.
✅ Reduces errors with automated workflows.
✅ Enhances customer experience with seamless order processing.

Let's continue the series and discuss further.

Thanks,

Venkatesh Golla