Procure to pay order to cash – What are the definitions and differences?

Smooth financial and logistics processes are a major asset for any company. Today, two major flow families can be distinguished in operations management: Procure to Pay (P2P), which focuses on purchasing and supplier payment, and Order to Cash (O2C), which is broader in scope and extends from the receipt of customer orders to the collection of payments. But what are the differences between Procure to Pay and Order to Cash?

In this article, we’ll take an in-depth look at their differences and complementarities, and at how implementing purchasing management software can help to streamline and automate these processes from start to finish.

Difference Procure-to-Pay Order-to-Cash (P2P vs O2C)

What is Procure-to-Pay (P2P)?

Procure-to-Pay, also known as the purchasing process, describes all the steps leading up to the acquisition of goods or services and payment of the associated invoices. Generally speaking, P2P works as follows:

1. Identifying the need: A company department identifies the need to acquire a good (raw material, component, etc.) or a service (maintenance, consulting, etc.) to meet one or more customer or internal requirements.
2. Purchase requisition / internal approval: The company issues a purchase requisition, which often goes through an approval circuit (manager, management, purchasing department).
3. Supplier selection: If necessary, following a call for tenders, negotiation or referencing, the company selects the appropriate supplier.
4. Issuing the purchase order: Once approved, a formal purchase order is sent to the supplier.
5. Receipt of goods or services: The company checks the conformity of the delivery or service.
6. Invoicing and reconciliation: The supplier issues the invoice, which is reconciled with the purchase order or goods receipt for checking.
7. Payment: Once the invoice has been validated, the company pays the invoice.

The main objectives of Procure to Pay P2P are to ensure expense control, good budget monitoring, good internal collaboration and a fluid relationship with suppliers.

What is Order-to-Cash (O2C)?

Order-to-Cash describes the entire process from receipt of a customer order to final collection of payment. Here are the main stages:

1. Receipt of order: A customer places an order for a product or service (via an online form, a signed contract, a sale exchange, etc.).
2. Validation and registration: The sales department registers the order in ERP or CRM and checks availability (stock, planning, etc.).
3. Execution / Delivery: The company designs, produces or ships the good (or provides the service).
4. Invoicing: An invoice is issued to the customer, based on the order or the progress of work.
5. Collection and follow-up of payments: The customer pays the invoice as agreed (bank transfer, cheque, etc.).
6. Dunning if necessary: In the event of late or unpaid invoices, the finance department initiates a dunning process.

The main objectives of O2C are toaccelerate collection, secure customer satisfaction and guarantee healthy cash flow.

Fundamental differences between P2P and O2C

	Procure to pay	Order to cash
Cash flow	Outgoing flow: The company is the “payer”, seeking to optimize the way it pays its suppliers.	Incoming flow: The company is the “receiver” of funds, seeking to better collect payments from its customers.
Financial targets	Reduce purchasing costs, respect budget constraints.	Improve cash flow, reduce payment times to collect faster.
Internal players	Purchasing, finance, accounts payable, production	Sales department, sales administration (ADV), accounts receivable, customer service manager.
Negotiation logic	The company tries to get the best price, negotiates framework contracts and organizes calls for tender.	The company defends its prices with customers, seeks to close a sale more quickly, while checking creditworthiness.
Risk	The main risk is budget drift, fraud, non-conformity of the invoice with the purchase order, or overstocking.	The main risk concerns customer non-payment, quality disputes, solvency, or lack of visibility on stock to honor the order.
Contractual relationship	Supplier-oriented relations, framework contracts, allocated budgets.	Customer relations, order management, service levels, customer satisfaction.

The challenges of digitalization and automation for Procure to Pay Order to Cash

Why replace paper, email and Excel processing with Procure to Pay Order to Cash?

Companies’ purchasing and ordering processes are still mainly handled by paper, email or Excel spreadsheets. These methods of collaboration create a great deal of friction:

• Multiple re-typing: the same information is typed several times in different systems or at different times.
• Multiple sources: Everyone has their own compartmentalized Excel spreadsheet or various e-mail exchanges.
• Lack of real-time traceability: paper or Excel versions are quickly outdated and insufficiently completed.
• More complex management: It’s difficult to generate immediate reports or automatic alerts.
• Risk of errors: copy and paste, sending manual emails, forgetting to update tools…

On the whole, our teams perform many repetitive and tedious tasks with no added value.

The benefits of digitalization and automation for Procure to Pay and Order to Cash

How Lapala software helps improve Procure to Pay Order to Cash

What does Lapala’s Procure to Pay solution offer?

Lapala makes it possible to centralize all requests and orders. And to combine a guided experience for teams with a high degree of customization to suit your current operations.

1. Purchase request: Instead of an e-mail or paper form, the user opens a customized Lapala online form to describe the requirement, quantity and budget.
2. Approval circuit: Depending on the amount, Lapala automatically sends the request to the manager or director for approval. It automates data entry to free employees from non-value-added tasks.
3. Supplier selection: Store supplier repositories or issue a call for tenders via Lapala.
4. Purchase order management: Lapala launches the order process and tracks order receipt and compliance.
5. Invoice reception and invoicing: The tool coordinates invoice validation, triggers payment steps…

Tailor-made, you can simply set up automations such as document storage, e-mail dispatch, ERP, CRM or HRIS updates…

Finally, Lapala software provides access to dashboards that enable managers to monitor all purchase requisitions and orders.

Set up an O2C flow on Lapala

1. Order creation: The sales rep uses a Lapala form to retrieve the prospect’s information and quote. Lapala creates or updates the opportunity in the CRM.
2. Production or logistics preparation: If the order is validated, a workflow is triggered for the workshop or warehouse: planning, stock removal or production are managed.
3. Automated invoicing: Upon shipment, Lapala generates the invoice, sends it to the customer, and feeds it into the accounting system.
4. Automatic reminders: If payment is not received by the due date, the tool notifies the finance department or sends a reminder email.

Conclusion: The future of financial chains lies in digitalization and automation

At a time when competitiveness depends on responsiveness and reliability, companies can no longer afford to manage their Procure to Pay Order to Cash flows separately, without a global vision. The links between procurement, production and delivery are stronger than ever, as are those between cash flow, invoicing and customer satisfaction.

1. Procure to Pay P2P guarantees cost and supply control.
2. Order to Cash ensures fast collection and optimum customer satisfaction.
3. Digitalization (with software such as Lapala) makes it possible to link these two worlds and orchestrate their multiple interactions.

Beyond ERP and CRM, automation through the use of Procure to Pay Lapala software offers guided experiences for every player (operator, manager, CFO, buyer, salesperson) and eliminates a large number of repetitive, low value-added tasks. What’s more, real-time analysis of key performance indicators (KPIs) enables bottlenecks to be identified and the process continually improved.

Frequently asked questions about P2P and O2C