An organization’s finance department has an incredibly broad framework of processes. It can often be difficult to keep track of them all, and even more difficult to differentiate them. Accounts Receivable, Accounts Payable, Invoicing, Tax Compliance, Financial Reporting- the list goes on. But two processes that are commonly confused are Order-to-Cash (O2C) and Procure-to-Pay (P2P).
SSON defines O2C as “the entirety of a company’s order processing system from when a sale is made to when payment is collected.” Whereas P2P is defined as “process of requisitioning, purchasing, receiving, paying for and accounting for goods and services.” However, more foundational knowledge of these processes can help highlight the differences between the two.
What is Order-to-Cash?
As identified by the SSON glossary, the O2C process begins the moment a customer places an order. The process then ends when the order is applied to Accounts Receivable and payment is received (i.e. cash). O2C is the end-to-end process that oversees an order moving to revenue But what are the steps needed to get from A to B?
The O2C process can be reduced to 6 key steps:
- Customer Places an Order: This step is self-explanatory but necessary. You cannot start the Order-to-Cash process without an order!
- Order Management: This step ensures that the order is sent to the correct department and handled accurately.
- Credit Management: An order placed in a Business-to-Business (B2B) transaction is often on credit instead of a real-time transfer. Organizations then check to see if a business customer is able to purchase on credit, how much they can receive, and how they will repay. In addition, organizations will continuously review customers to ensure credit is being repaid effectively.
- Order fulfilment and shipping: The business delivers the product or service.
- Invoicing and billing: An accurate invoice is issued to the customer.
- Payment collected: The organization receives payment.
What is Procure-to-Pay?
P2P is a system that completely automates the purchasing process for businesses. The procurement system ranges from purchasing goods/ services to payment.
Although there are a few different breakdowns of P2P, the process can be defined by 5 stages:
- Sourcing Goods: The organization identifies a need, and then conducts a product search. This allows the organization to select a vendor.
- Purchase Requisition: Once a vendor has been identified, an internal request is made by the individual looking to acquire the goods/ services. This is sent to anyone who may need to approve the purchase.
- Purchase Order (PO): Once the requisition is approved, a PO is created and sent to the vendor. A PO is a legally binding contract that will detail what the organization intends to purchase and for how much.
- Invoicing: The vendor will then provide an invoice, including the payment amount and a deadline for when the invoice needs to be settled.
- Payment: The vendor invoice is paid.
The Key Difference Between O2C and P2P
Looking at the two processes and their subsequent steps, there is one key difference: who is placing the order. In O2C, the customer is making an order, whereas in P2P the business is making an order. So, although both processes deal with orders and payments, they are dealt with by different teams.
Every organization has an O2C and P2P element, but the two can be clearly differentiated. On one hand, O2C depends on an organization selling their own goods/ services. On the other hand, P2P involves procuring resources needed to keep the business running.
O2C is customer-facing and focuses on generating revenue. P2P is more internal and focuses on procurement and expenditure. They could even be considered two sides of the same coin.
Do you find yourself struggling with manual invoice processing? Join SSON and DocuPhase as we showcase how AP automation technologies and integrated vendor payment solutions can streamline for Invoice-to-pay process.
Ready to Level Up Your Invoice-to-Pay Process in 45 Minutes? Secure your place today!