P2P vs R2R vs Q2C vs O2C:
What’s the Difference?
Taylor Pettis September 8th, 2021
Optimizing your organization’s procurement procedures can seem like a Herculean task, especially when so many of the processes that fall under the procurement umbrella—P2P, R2R, Q2C, O2C—seem like an alphabet soup. But understanding the key differences between these processes is a crucial step on the path to optimization. With that knowledge, your company can gain better operational insights, improve productivity, and make more informed business decisions.
Here, we’ll dive into the differences between P2P, R2R, Q2C, and O2C, what they’re used for, and why they’re critical to your organization.
At a Glance:
The Difference Between P2P, Q2C, R2R, and O2C
Before we get into the nitty-gritty details of each process, it can be helpful to understand the high-level differences between each process. Take a look at the table below as we compare and contrast P2P, Q2C, R2R, AND O2C. Find out what they are used for and which teams in an organization drive each of these processes.
WHAT IS IT USED
WHO DRIVES THE PROCESS?
Sourcing and paying for good and services
Creating quotes for
Fulfilment and shipping teams
Financial and accounting teams
The Differences Are in the Process
P2P vs R2R vs Q2C vs O2C Infographic
The distinctions outlined in the chart above are just the crux of what makes each process unique. Below, we’ll take an in-depth look at all four processes to help you further understand how each of them functions. We’ll start with an infographic outlining the P2P, R2R, Q2C, and O2C processes side by side, and then get into each of them separately.
What Is Procure-to-Pay (P2P)?
Procure-to-pay (P2P) is an essential process for organizations that utilize external vendors or suppliers and includes requisitioning, purchasing, receiving, invoicing, and paying for goods and services. Essentially, the P2P process covers every step needed for a company to obtain and pay for goods and services.
An Overview of the P2P Process
While the process can vary a bit from one organization to the next, the P2P process usually follows these overarching steps:
1. IDENTIFY NEEDS
Before an organization can procure and pay for goods and services, they must first determine what they actually need. This first step involves the applicable department (e.g. marketing, HR, sales, etc.) identifying what’s required, which potential vendor is the best fit, and how much the goods or services will cost.
2. CREATE PURCHASE REQUISITION
Next, the department must create a purchase requisition, an internal-facing request for purchase that accounting must review. If accounting approves the purchase requisition, the purchasing department will send a document called the purchase order (PO)—the official, external-facing purchase request—to the vendor.
3. RECEIVE PURCHASE ORDER (PO) APPROVAL
Approving purchase orders can be a time-consuming process—especially for organizations with a manual P2P process. That’s because both the buyer and vendor must approve the PO, which can take several rounds of internal and external modifications. But this back-and-forth is necessary for preventing errors and ensuring all of the information is correct. Keep in mind that purchase orders are different from invoices.
4. RECEIVE VENDOR’S INVOICE
Once the purchased goods or services have been obtained, the vendor will send an invoice to the buyer, whose accounts payable team will then begin the payment process. PO invoices are based on pre-approved purchase orders, but there are also non-PO invoices, which are not connected to any purchase orders. These should be avoided because they are significantly more difficult to process and track, as they are not suitable for three-way matching.
5. PAY VENDORS THROUGH ACCOUNTS PAYABLE
Finally, the buyer’s accounts payable team will input the vendor invoice into the organization’s accounting system—a process that, when done manually, is time-consuming and can be riddled with costly errors. While modern organizations rely on software to help automate the process, some companies still use the manual approach of the past, which requires each vendor invoice to get keyed into the accounting system, pass through the appropriate people for approval, and then eventually get paid out.
What Is Record-to-report (R2R)?
Record-to-report (R2R) is the process of collecting, processing, and delivering the information businesses use to make healthy financial and accounting decisions. It’s essential for strategic planning, accurate financial and operational feedback, and improving business functions for a better bottom line.
An Overview of the R2R Process
The R2R process, which also involves both preparing and reporting overall accounts, includes the following steps:
1. EXTRACT DATA
The first step to studying data, of course, is to pull the information you need. This data can come from a variety of sources and exist in multiple formats, so special extraction tools may be necessary. How often the data extraction occurs depends on the needs of the business, but quarterly and annual extractions are common.
2. COLLECT DATA
Once all the proper data has been extracted, it will then need to be collected in a single system for review. This allows you to more easily analyze the data, as it creates a bird’s eye view of information from different sources.
3. VALIDATE DATA
Next, the data that’s been extracted and collected must be validated to ensure accuracy and that it complies with accounting standards. Any overlooked mistakes could become costly errors down the road, both in terms of time and money.
4. TRANSFORM DATA INTO KPIs
After the data has been confirmed as accurate, it must be interpreted and translated into meaningful key performance indicators (KPIs). These KPIs will be used to measure efficiency, productivity, and room for improvement.
5. SHARE THE RESULTS
Finally, the finance and/or accounting team(s) determine the best way to present the resulting information and share the report with internal and external stakeholders. The report—which may differ depending on data complexity, information needs, and formatting requirements—is then used to make key business decisions moving forward.
What Is Quote-to-cash (Q2C)?
The quote-to-cash (Q2C) process includes all of the procedures related to sales activity that directly, actively leads to a sale, from working with a customer when they request a quote on a product to actually closing the deal and receiving payment. Because the line between some sales activities and marketing functions can blur, it’s important to note that some marketing activities that occur earlier in the buying funnel—like email marketing, cold-calling, and prospecting— aren’t truly part of the more measurable Q2C process.
An Overview of the Q2C Process
Each of the following steps in the Q2C process works independently, but should be tied together by an overall cohesive, efficient process:
1. CONFIGURE THE PRODUCT OR SERVICE
The first step in the Q2C process is working with the potential client to determine the exact specifications and details they want in the product or service they’re interested in buying. The salesperson must take critical care in this step, as any manual errors can cause the lead to get frustrated and change their mind about buying the product.
2. UNDERSTAND THE PRICING STRUCTURE
Once the salesperson understands precisely what the customer needs, they’ll then determine how much the product will cost based on the pricing structure, including discounts and potential surcharges for specialized requests.
3. DEVELOP AND NEGOTIATE A QUOTE
Armed with the pricing information, the salesperson can next calculate the unit price, which they’ll present to the customer. Depending on the customer and their constraints and expectations, there may be some negotiation before both parties settle on a final price (if the customer still decides they want the product).
4. PROCESS THE CONTRACT AND GENERATE AN INVOICE
After the customer agrees to the quote, the sales team will develop a more formal contract, and accounting will generate an invoice. Again, special care must be taken during this step to avoid any potential contractual or billing errors that would put the relationship with the client at risk.
5. RECEIVE A PAYMENT RECEIPT
Once the customer has fulfilled payment on the product, the vendor’s accounts receivable team will send a formal receipt of payment, which must be accurately recorded in the accounting system of both parties.
6. MANAGE YOUR CONTRACT
Depending on what exactly a vendor is selling, they’ll most likely need to monitor the contract to ensure 1. That the customer gets what they’ve paid for and 2. To try and earn repeat business from the customer or upsell to them.
What Is Order-to-cash (O2C)?
The order-to-cash (O2C) process is the organization’s end-to-end procedure for order processing. O2C is an important element of how your business approaches managing and improving customer relationships.
The O2C process kicks off after your marketing and sales teams have accomplished their initial mission and your customer first places an order. The process continues through the various stages of order fulfillment and continues even after you have received payment for the order, when your team records and analyzes all order-related data. In many organizations, O2C is a subset of Q2C, the difference being that the O2C process begins later, as soon as the customer’s order has been placed.
An Overview of the O2C Process
There are generally five steps that make up the O2C process:
1. CUSTOMER ORDERS
The O2C cycle begins once a customer places an order for goods or services through the organization’s order management system. Order management often involves sending automated notifications to sales and procurement teams, as well as any other team or department involved in the initial stages of the ordering process.
2. FULFILL THE ORDER
Once the order is placed, the organization prepares the product for shipment or schedules a service appointment with the customer.
3. SHIP THE ORDER
Next, the product is shipped to the customer or the service is fulfilled at the proper date and time. Inventory counts are updated and all related teams are notified of the order fulfillment. If a product is out of stock or unavailable, the customer receives an immediate notification including details for alternative fulfillment.
4. INVOICE THE CUSTOMER
After the product has been received or the service has been completed, the organization generates and sends a detailed invoice including order specifics, prices, shipping dates, and other pertinent data, to the customer for payment.
5. RECORD PAYMENT
The organization’s accounts receivable team records the customer’s completed payment in a detailed ledger. This data is then analyzed in order to identify potential areas for improvement and greater efficiency.
Ready for more? Learn more about the differences between P2P and S2P
Using Automation to Improve
P2P, Q2C, R2R, and O2C
The P2P, Q2C, R2R, and O2C processes provide critical functions to any business, so it’s essential to manage all four procedures properly.
However, this can be a daunting task, as each process is complex and time-consuming to handle—particularly for companies still using manual methods to do so. Outdated processes mean juggling the various documents involved (like requisitions, POs, invoices, and more), routing these documents to the appropriate parties, and handling all of the data associated with them. Disparate systems and human error can make these processes a costly, burdensome task for already overworked sales, accounting, and finance teams.
But modern organizations have lifted this burden from teams by automating these processes with robust software solutions. The result is optimized procedures that reduce inefficiencies and increase transparency across the organization. And because these solutions streamline each process by connecting disparate enterprise systems, eliminating manual data entry, and ensuring compliance, employees are freed up to focus on more critical tasks.
MHC offers such flexible, automated solutions that meet the unique needs of your business. Learn how MHC can optimize your critical business functions, increase transparency, and reduce administrative spend, or request a personalized demo to see it in action.
P2P AUTOMATION WEBINAR
July 26, 2022
Metrics matter. Join us for this in-depth overview of how AP and Procure-to-Pay operations can be transformed through metrics. This webinar will review continuous improvement concepts, applying Lean Six Sigma and Kaizen methodologies. Our speaker will discuss how to set goals and engage your teams in an effort to meet and exceed these goals.