The standard O2C flow

The flow

Quote → Sales Order → Credit check → Pick/Pack →
Ship → Invoice → Receipt of payment →
Cash application → Bank reconciliation

Nine steps. Two of them post journal entries (shipment + invoice, payment receipt). The others are controls and handoffs.

Step-by-step

1. Quote (optional)

Sales team prepares a quotation: customer, items, agreed unit prices, validity period, payment terms. Sent to the buyer for approval. If it becomes an order, the quote is converted — no re-typing.

No GL impact. Just a commercial offer.

2. Sales Order

Customer confirms. Sales order is created with: customer, delivery address, items + quantities, pricing, promised delivery date, agreed payment terms.

In AION, a sales order (SO) is a commitment — it shows up on the forward-looking pipeline, reserves stock if configured to, and drives warehouse pick lists.

No GL impact yet.

3. Credit check

The most important control in O2C.

The system compares:

• The customer’s credit limit (set in the customer master)
• Their current open AR balance
• Any overdue invoices

If the new SO would push them over the limit, or they have invoices past due beyond policy tolerance, the SO is flagged for manual release. A credit analyst or CFO must approve before it moves forward.

4. Pick / Pack

Warehouse pulls the SKUs against the SO. Lot numbers and expiry dates are captured at picking (critical in F&B — you need to ship FIFO/FEFO to avoid expired product in customer hands).

Packing documents are generated for each shipment.

5. Ship

Goods leave the warehouse. Carrier is assigned. Bill of lading / delivery note is generated.

First GL impact:

Account	DR	CR
Cost of Goods Sold (COGS)	X
Finished Goods Inventory		X

The cost used is the current period average cost of the shipped items. The moment the truck leaves, inventory drops and COGS increases. Not when the invoice is issued, not at month-end — at shipment.

6. Invoice

Customer invoice is generated from the shipment — same items, same quantities, at the SO prices. In a VAT environment, the tax breakdown is calculated and shown on the invoice.

Second GL impact:

Account	DR	CR
Accounts Receivable — Customer	X + Y
Sales Revenue		X
VAT Output		Y

Revenue is now recognized. The customer owes you.

In a ZATCA/ETA jurisdiction, the invoice must also be generated in the mandated e-invoice format with QR code and (in Phase 2) transmitted to the tax authority in real time.

7. Receipt of payment

Customer pays — wire, check, card, cash, whatever. Finance records the receipt against the customer’s account.

Third GL impact:

Account	DR	CR
Bank	X + Y
Accounts Receivable — Customer		X + Y

8. Cash application

If the payment covers a specific invoice number, it’s applied directly. If it’s a lump sum covering multiple invoices, a cash applier (accountant or automated matching rule) allocates the payment across the right invoices.

Partial payments, discounts, short payments, and unapplied cash all happen here.

9. Bank reconciliation

At month-end, every receipt logged in the system should have a corresponding deposit on the bank statement. Unmatched items are investigated.

The seven SMB problems

A. Orders captured outside the system. Sales reps take orders on WhatsApp or by phone; the formal SO is created days later — if at all. Stock gets reserved late, delivery promises are missed, inventory is wrong.

B. Credit limits exist but nobody checks them. “We trust this customer” replaces a real control. Then the customer defaults and the owner discovers they were 6× over their limit.

C. Shipment and invoice are disconnected. Warehouse ships based on paper pick lists; AP invoices days later from memory. Shipment quantity and invoice quantity drift apart. Customer disputes follow.

D. COGS is wrong. Standard cost is set once at year-end and never updated; the gross margin report is fiction. Pricing decisions made on fiction are bad decisions.

E. Revenue recognition timing is ambiguous. Is it recognized at shipment? At invoice? At customer acceptance? Different people post different dates and month-end cutoff is a mess.

F. AR aging runs quarterly, not daily. By the time you see a 90-day bucket, it’s already 120. Collections start too late to matter.

G. Cash is applied by memory. “I think this 42,000 SAR wire was for the Panda order” — no document trail, no way to prove it at audit.

Next lesson

In Lesson 3 — How AION automates O2C, we’ll walk through each of these steps and show the specific AION features that automate them, plus the SLA resolvers that handle the accounting automatically.