Order-to-Cash vs Procure-to-Pay: What’s the Difference

Order-to-cash and procure-to-pay are two distinct business processes that deal with customer orders and procurement respectively. The former deals with processes involved in receiving and fulfilling sales orders while the latter refers to steps involved in the procurement of goods and services from external vendors.

Both processes have different goals and involve different stakeholders. Order-to-cash is managed by sales, fulfilment, product shipping and inventory management teams. On the other hand, procure-to-pay involves the procurement and accounts payable functions.

What is Order-to-Cash?

The order-to-cash cycle, or O2C, describes the workflow related to customer ordering and fulfilment process. It describes how your business receives, processes and completes customer orders. The cycle includes processing the order, shipping the items, creating invoices, collecting payments and end-to-end process reporting.

The cycle begins when a customer places an order for goods or services and continues through various stages of order fulfilment. It is preceded by sales and marketing teams reaching out to prospective leads for making a sale.

The business fulfils and ships the order and sends the invoice to the customer. The cycle concludes with receiving the payment from the customer and recording the payment in the system.

Any delay in payment collection can impact the organization’s cash flow. It can also hamper the operations of accounts payable, payroll and other functions. A fast and efficient O2C cycle reduces the time between getting an order and getting paid, thereby contributing to a healthy cash flow.

An efficient O2C cycle also enhances customer experience by reducing the order-to-fulfilment time, ensuring that customers receive the goods they order in time. Additionally, it helps customers understand when their payment is due and when their order will be delivered.

The steps involved in the order-to-cash cycle are:

1. Receiving customer orders and capturing relevant information
2. Checking the inventory of ordered products and services to process the order
3. Packaging and shipping the order to the customer’s location
4. Generating and sending invoice to the customer
5. Collecting payment from the customer
6. Recording the payment in the accounting system

While O2C may seem a simple, straightforward process, it often involves several additional steps to ensure accuracy and speed up remittance. Businesses know there is an opportunity to streamline the process, identify trends and improve customer satisfaction by analyzing data captured during different stages of the cycle. This requires integrating functions and data across different business processes.

What is Procure-to-Pay?

Procure-to-pay, or P2P, refers to a business’s procurement cycle that begins when an internal team needs to purchase a product or service from an external vendor.

It includes multiple processes such as requisitioning, purchasing, receiving, approving invoices and paying the vendor.

The steps involved in the procure-to-pay cycle are:

1. Identifying the need for a product or service
2. Creating a purchase requisition
3. Evaluating suppliers based on defined parameters
4. Creating purchase orders that specify the products, quantity, pricing and terms
5. Receiving the products from the vendor and matching them with the purchase order
6. Receiving and validating invoices from the vendor
7. Authorizing and processing payments to vendors based on approved invoices

Like O2C, the P2P cycle presents many opportunities for optimization that can deliver significant returns. Given the increased focus on building a resilient supply chain in a disruption-prone environment, leveraging P2P data and analytical tools is vital for all businesses today.

Also, the P2P cycle requires procurement and accounts payable to work in close coordination, especially in regard to invoice approvals. Thus, there is a strong business case for leveraging technology and automating the end-to-end P2P process. Technology replaces paperwork with digital invoicing, tracking and approvals. It automates repetitive tasks and boosts process efficiency. Additionally, it enhances spend visibility and brings more spend under management.

Further, advanced P2P software vastly improves user experience. It gives users an intuitive purchase experience, allowing them to buy what they need, compare items and place easily trackable orders.

Finally, technology enhances transparency in the entire cycle. It allows all stakeholders to access the same information in real time.